Medicare is the federal health insurance program established in 1965 under Title XVIII of the Social Security Act for people age 65 or older, regardless of income or medical history, and later expanded to cover people under age 65 with long-term disabilities. Today, Medicare provides health insurance coverage to 66 million people, including 58 million people age 65 or older and 8 million people under age 65. Medicare covers a comprehensive set of health care services, including hospitalizations, physician visits, and prescription drugs, along with post-acute care, skilled nursing facility care, home health care, hospice, and preventive services. People can choose to get coverage of Medicare benefits under traditional Medicare or Medicare Advantage private plans.

Medicare spending comprised 12% of the federal budget in 2022 and 21% of national health care spending in 2021. Funding for Medicare comes primarily from general revenues, payroll tax revenues, and premiums paid by beneficiaries. Over the longer term, the Medicare program faces financial pressures associated with higher health care costs, growing enrollment, and an aging population.

Most people become eligible for Medicare when they reach age 65, regardless of income, health status, or medical conditions. Residents of the U.S., including citizens and permanent residents, are eligible for premium-free Medicare Part A if they have worked at least 40 quarters (10 years) in jobs where they or their spouses paid Medicare payroll taxes and are at least 65 years old. People under age 65 who receive Social Security Disability Insurance (SSDI) payments generally become eligible for Medicare after a two-year waiting period. People diagnosed with end-stage renal disease (ESRD) and amyotrophic lateral sclerosis (ALS) become eligible for Medicare with no waiting period.

Medicare covers a diverse population in terms of demographics and health status, and this population is expected to grow larger and more diverse in the future as the U.S. population ages. Currently, most people with Medicare are White, female, and between the ages of 65 and 84 (Figure 1). The share of U.S. adults who are age 65 or older is projected to grow from 17% in 2020 to nearly a quarter of the nation’s total population in 2060, while people ages 80 and older will account for more than one-third of people 65 and older in 2060, up from one-quarter in 2020. As the U.S. population ages, the number of Medicare beneficiaries is projected to grow from around 63 million people in 2020 to just over 93 million people in 2060. The Medicare population will also grow more racially and ethnically diverse. By 2060, people of color will comprise close to half (47%) of the U.S. population ages 65 and older, nearly double the share in 2020 (25%).

While many Medicare beneficiaries enjoy good health, others live with health problems that affect their quality of life, including multiple chronic conditions, limitations in their activities of daily living, and cognitive impairments. In 2021, one-third (33%) of Medicare beneficiaries had four or more chronic conditions, more than a quarter (27%) had a functional impairment, and 17% had a cognitive impairment (Figure 2).

Most Medicare beneficiaries have limited financial resources, including income and assets. In 2023, half of all Medicare beneficiaries had incomes below $36,000 and savings below $103,800 per person. Median incomes for Medicare beneficiaries are lower among women than men, among people of color than White beneficiaries, and among beneficiaries under age 65 with disabilities than older beneficiaries (Figure 3).

Benefits. Medicare covers a comprehensive set of medical care services, including hospital stays, physician visits, and prescription drugs. Medicare benefits are divided into four parts: 

• Part A, also known as the Hospital Insurance (HI) program, covers inpatient care provided in hospitals and short-term stays in skilled nursing facilities, hospice care, post-acute home health care, and pints of blood received at a hospital or skilled nursing facility. An estimated 63.5 million people were enrolled in Part A in 2021. In 2021, 14% of beneficiaries in traditional Medicare had an inpatient hospital stay, while 8% used home health care services, and 4% had a skilled nursing facility stay (Figure 4). (Comparable utilization data for beneficiaries in Medicare Advantage is not available.)
• Part B, the Supplementary Medical Insurance (SMI) program, covers outpatient services such as physician visits, outpatient hospital care, and preventive services (e.g. mammography and colorectal cancer screening), among other medical benefits. An estimated 58 million people were enrolled in Part B in 2021. A larger share of beneficiaries use Part B services compared to Part A services. For example, in 2021, nearly 9 in 10 (88%) traditional Medicare beneficiaries used physician and other medical services covered under Part B and 66% used outpatient hospital services.
• Part C, more commonly referred to as the Medicare Advantage program, allows beneficiaries to enroll in a private plan, such as a health maintenance organization (HMO) or preferred provider organization (PPO), as an alternative to traditional Medicare. Medicare Advantage plans cover all benefits under Medicare Part A, Part B, and, in most cases, Part D (Medicare’s outpatient prescription drug benefit), and typically offer extra benefits, such as dental services, eyeglasses, and hearing exams. In 2023, 31 million beneficiaries were enrolled in Medicare Advantage, which is 51% of Medicare beneficiaries who are eligible to enroll in Medicare Advantage plans. (See “What Is Medicare Advantage and How Is It Different From Traditional Medicare?” for additional information.) 
• Part D is a voluntary outpatient prescription drug benefit delivered through private plans that contract with Medicare, either stand-alone prescription drug plans (PDPs) or Medicare Advantage prescription drug (MA-PD) plans. In 2023, an estimated 50 million beneficiaries are enrolled in Part D. In 2021, nearly all Medicare beneficiaries enrolled in Part D (98%) used prescription drugs. (See “What Is the Medicare Part D Prescription Drug Benefit?” for additional information.)

Although Medicare covers a comprehensive set of medical benefits, Medicare does not cover long-term care services. Additionally, coverage of vision services, dental care, and hearing aids is not part of the standard benefit, though most Medicare Advantage plans offer some coverage of these services.

Premiums and cost sharing. Medicare has varying premiums, deductibles, and coinsurance amounts that typically change yearly to reflect program cost changes.

• Part A: Most beneficiaries do not pay a monthly premium for Part A services, but are required to pay a deductible for inpatient hospitalizations ($1,632 in 2024). (People who are working contribute payroll taxes to Medicare and qualify for premium-free Part A at age 65 based on having paid 1.45% of their earnings over at least 40 quarters). Beneficiaries are generally subject to cost sharing for Part A benefits, including extended inpatient stays in a hospital ($408 per day for days 61-90 and $816 per day for days 91-150 in 2024) or skilled nursing facility ($204 per day for days 21-100 in 2024). There is no cost sharing for home health visits.
• Part B: Beneficiaries enrolled in Part B, including those in traditional Medicare and Medicare Advantage plans, are generally required to pay a monthly premium ($174.70 in 2024). Beneficiaries with annual incomes greater than $103,000 for a single person or $206,000 for a married couple in 2024 pay a higher, income-related monthly Part B premium, ranging from $244.60 to $594. Approximately 8% of all Medicare beneficiaries are expected to pay income-related Part B premiums in 2024. Part B benefits are subject to an annual deductible ($240 in 2024), and most Part B services are subject to coinsurance of 20 percent.
• Part C: In addition to paying the Part B premium, Medicare Advantage enrollees may be charged a separate monthly premium for their Medicare Advantage plan, although 7 in 10 enrollees were in plans that charged no additional premium in 2023. Medicare Advantage plans are generally prohibited from charging more than traditional Medicare, but vary in the deductibles and cost-sharing amounts they charge. Medicare Advantage plans may establish provider networks and require higher cost sharing for services received from non-network providers.
• Part D: Part D plans vary in terms of premiums, deductibles, and cost sharing. People in traditional Medicare who are enrolled in a separate stand-alone Part D plan generally pay a monthly Part D premium unless they qualify for full benefits through the Part D Low-Income Subsidy (LIS) program and are enrolled in a premium-free (benchmark) plan. In 2023, the average enrollment-weighted premium for stand-alone Part D plans was $40 per month, substantially higher than the enrollment-weighted average monthly portion of the premium for drug coverage in MA-PDs ($10 in 2023).

Sources of coverage. Most people with Medicare have some type of coverage that may protect them from unlimited out-of-pocket costs and may offer additional benefits, whether it’s coverage in addition to traditional Medicare or coverage from Medicare Advantage plans, which are required to have an out-of-pocket cap and typically offer supplemental benefits (Figure 5). However, based on KFF analysis of data from the 2021 Medicare Current Beneficiary Survey, 3 million people with Medicare have no additional coverage, which places them at risk of facing high out-of-pocket spending or going without needed medical care due to costs.  

• Medicare Advantage plans now cover more than half of all Medicare beneficiaries enrolled in both Part A and Part B, or 31 million people (in 2021, Medicare Advantage enrollment was just under half of beneficiaries, or around 27 million people). (See “What Is Medicare Advantage and How Is It Different From Traditional Medicare?” for additional information.)
• Employer and union-sponsored plans provided some form of coverage to 15.2 million Medicare beneficiaries – one-quarter (26%) of Medicare beneficiaries overall in 2021. Of the total number of beneficiaries with employer coverage, 9.7 million beneficiaries had this coverage in addition to traditional Medicare (32% of beneficiaries in traditional Medicare), while 5.6 million beneficiaries were enrolled in Medicare Advantage employer group plans. (These estimates exclude 5.2 million Medicare beneficiaries with Part A only in 2021, primarily because they or their spouse were active workers and had primary coverage from an employer plan.) 
• Medicare supplement insurance, also known as Medigap, covered 2 in 10 (21%) Medicare beneficiaries overall, or 41% of those in traditional Medicare (12.5 million beneficiaries) in 2021. Medigap policies, sold by private insurance companies, fully or partially cover Medicare Part A and Part B cost-sharing requirements, including deductibles, copayments, and coinsurance. 
• Medicaid, the federal-state program that provides health and long-term services and supports coverage to low-income people, was a source of coverage for 11 million Medicare beneficiaries with low incomes and modest assets in 2021 (19% of all Medicare beneficiaries), including 6.1 million enrolled in Medicare Advantage and 5.0 million in traditional Medicare. (This estimate is somewhat lower than KFF estimates published elsewhere due to different data sources and methods used.) For these beneficiaries, referred to as dual-eligible individuals, Medicaid typically pays the Medicare Part B premium and may also pay a portion of Medicare deductibles and other cost-sharing requirements. Most dual-eligible individuals are eligible for full Medicaid benefits, including long-term services and supports.

Medicare Advantage, also known as Medicare Part C, allows beneficiaries to receive their Medicare benefits from a private health plan, such as an HMO or PPO. Medicare pays private insurers to provide Medicare-covered benefits (Part A and B, and often Part D) to enrollees. Virtually all Medicare Advantage plans include an out-of-pocket limit for benefits covered under Parts A and B, and most offer additional benefits not covered by traditional Medicare, such as vision, hearing, and dental. The average Medicare beneficiary can choose from 43 Medicare Advantage plans offered by eight insurance companies in 2024. These plans vary across many dimensions, including premiums, cost-sharing requirements, out-of-pocket limits, extra benefits, provider networks, prior authorization and referral requirements, denial rates, and prescription drug coverage.

More than half of all eligible Medicare beneficiaries (51%), are currently enrolled in a Medicare Advantage plan, up from 25% in 2010 (Figure 6). The share of eligible Medicare beneficiaries in Medicare Advantage plans varies across states, ranging from 2% in Alaska to 60% in Alabama, Hawaii, and Michigan. Growth in Medicare Advantage enrollment is due to a number of factors. Medicare beneficiaries are attracted to Medicare Advantage due to the multitude of extra benefits, the simplicity of one-stop shopping (in contrast to traditional Medicare where beneficiaries might purchase a Part D plan and a Medigap plan), and the availability of plans with no premiums beyond the Part B premium, driven in part by the current payment system that generates high gross margins in this market (see “How Does Medicare Pay Private Plans in Medicare Advantage and Medicare Part D?” for additional information). Insurers market these plans aggressively, airing thousands of TV ads for Medicare Advantage during the Medicare open enrollment period. In some cases, Medicare beneficiaries have no choice but to be enrolled in a Medicare Advantage plan for their retiree health benefits as some employers are shifting their retirees into these plans; if they are dissatisfied with this option, they may have to give up retiree benefits altogether, although they would retain Medicare and have the option to choose traditional Medicare (potentially with a Medigap supplement).

There are several differences between Medicare Advantage and traditional Medicare. Medicare Advantage plans can establish provider networks, the size of which can vary considerably for both physicians and hospitals, depending on the plan and the county where it is offered. These provider networks may also change over the course of the year. Medicare Advantage enrollees who seek care from an out-of-network provider may pay higher cost sharing or pay completely out of-pocket for their care. In contrast, traditional Medicare beneficiaries may see any provider that accepts Medicare and is accepting new patients. In 2019, 89% of non-pediatric office-based physicians accepted new Medicare patients, with little change over time. Only 1% of all non-pediatric physicians formally opted out of the Medicare program in 2023.

Medicare Advantage plans also often use tools to manage utilization and costs, such as requiring enrollees to receive prior authorization before a service will be covered and requiring enrollees to obtain a referral for specialists or mental health providers. In 2023, virtually all Medicare Advantage enrollees were in plans that required prior authorization for some services, most often higher-cost services. Over 35 million prior authorization requests were submitted to Medicare Advantage plans in 2021 (Figure 7). Prior authorization and referrals to specialists are applied less frequently in traditional Medicare, with prior authorization generally applying to a limited set of services.

Medicare Advantage plans are required to use payments from the federal government that exceed their costs of covering Part A and B services (known as rebates) to provide supplemental benefits to enrollees, such as lower cost sharing, extra benefits not covered by traditional Medicare, or rebates toward Part B and/or Part D premiums. Examples of extra benefits include eyeglasses, hearing exams, preventive dental care, and gym memberships (Figure 8). (See “How Does Medicare Pay Private Plans in Medicare Advantage and Medicare Part D?” for a discussion of how Medicare pays Medicare Advantage plans). [Additionally], Medicare Advantage plans must include a cap on out-of-pocket spending, providing protection from catastrophic medical expenses. Traditional Medicare does not have an out-of-pocket limit, though some have protection from catastrophic costs if they purchase a Medigap policy. (See “What Does Medicare Cover and How Much Do People Pay for Medicare Benefits?” for a brief discussion of Medigap.)

Medicare Part D, Medicare’s voluntary outpatient prescription drug benefit, was established by the Medicare Modernization Act of 2003 (MMA) and launched in 2006. Before the addition of the Part D benefit, Medicare did not cover the cost of outpatient prescription drugs. Under Part D, Medicare helps cover prescription drug costs through private plans that contract with Medicare to offer the Part D benefit to enrollees, which is unlike coverage of Part A and Part B benefits under traditional Medicare, and beneficiaries must enroll in a Part D plan if they want this benefit.

A total of 50.5 million people with Medicare are currently enrolled in plans that provide the Medicare Part D drug benefit, including plans open to everyone with Medicare (stand-alone prescription drug plans, or PDPs, and Medicare Advantage drug plans, or MA-PDs) and plans for specific populations (including retirees of a former employer or union and Medicare Advantage Special Needs Plans, or SNPs). More than 13 million low-income beneficiaries receive extra help with their Part D plan premiums and cost sharing through the Part D Low-Income Subsidy Program (LIS).

For 2024, the average Medicare beneficiary has a choice of 21 stand-alone Part D plans and 36 Medicare Advantage drug plans. These plans vary in terms of premiums, deductibles and cost sharing, the drugs that are covered, any utilization management restrictions that apply, and pharmacy networks. People in traditional Medicare who are enrolled in a separate stand-alone Part D plan generally pay a monthly Part D premium unless they qualify for full benefits through the Part D LIS program and are enrolled in a premium-free (benchmark) plan. In 2023, the average enrollment-weighted premium for stand-alone Part D plans was $40 per month. In 2023, most stand-alone Part D plans included a deductible, averaging $411. Plans generally impose a tiered structure to define cost-sharing requirements and cost-sharing amounts charged for covered drugs, typically charging lower cost-sharing amounts for generic drugs and preferred brands and higher amounts for non-preferred and specialty drugs, and a mix of flat dollar copayments and coinsurance (based on a percentage of a drug’s list price) for covered drugs.

The standard design of the Medicare Part D benefit currently has four distinct phases, where the share of drug costs paid by Part D enrollees, Part D plans, drug manufacturers, and Medicare varies. Based on changes in the Inflation Reduction Act, these shares will change in 2024 and 2025 (Figure 9). Most notably, the benefit includes catastrophic coverage for enrollees with high drug costs, a phase where Part D enrollees not receiving low-income subsidies have been responsible for paying 5% of their total drug costs. In 2024, costs in the catastrophic phase will change: the 5% coinsurance requirement for Part D enrollees will be eliminated and Part D plans will pay 20% of total drug costs in this phase instead of 15%. In 2025, out-of-pocket drug costs for Part D enrollees will be capped at $2,000. These changes are expected to help well over 1 million Part D enrollees with high drug costs each year.

The Inflation Reduction Act of 2022, signed into law by President Biden on August 16, 2022, includes several provisions to lower prescription drug costs for people with Medicare and reduce drug spending by the federal government, including several changes related to the Part D benefit. These provisions include (but are not limited to) (Figure 10):

• Requiring the Secretary of the Department of Health and Human Services to negotiate the price of some drugs covered under Medicare, with negotiated prices first available for 10 Part D drugs in 2026 (and first available for Part B drugs in 2028). The law that established the Part D benefit included a provision known as the “noninterference” clause, which, to date, has prevented the HHS Secretary from being involved in price negotiations between drug manufacturers and pharmacies and Part D plan sponsors. In addition, the Secretary of HHS does not currently negotiate prices for drugs covered under Medicare Part B (administered by physicians).
• Adding a hard cap on out-of-pocket drug spending under Part D, which will phase in beginning in 2024, with a $2,000 cap on out-of-pocket spending in 2025. As noted above, under the original design of the Part D benefit, enrollees have had catastrophic coverage for high out-of-pocket drug costs, but there has been no limit on the total amount that beneficiaries pay out of pocket each year. 
• Limiting the price of insulin products to no more than $35 per month in all Part D plans and in Part B and making adult vaccines covered under Part D available for free as of 2023. Until these provisions took effect, beneficiary costs for insulin and adult vaccines were subject to varying cost-sharing amounts.
• Expanding eligibility for full benefits under the Part D Low-Income Subsidy program in 2024, eliminating the partial LIS benefit for individuals with incomes between 135% and 150% of poverty. Beneficiaries who receive full LIS benefits pay no Part D premium or deductible and only modest copayments for prescription drugs until they reach the catastrophic threshold, at which point they face no additional cost sharing.
• Requiring drug manufacturers to pay a rebate to the federal government if prices for drugs covered under Part D and Part B increase faster than the inflation rate, with the initial period for measuring Part D drug price increases running from October 2022-September 2023. Previously, Medicare had no authority to limit annual price increases for drugs covered under Part B or Part D. Year-to-year drug price increases exceeding inflation are not uncommon and affect people with both Medicare and private insurance.

In 2023, Medicare is estimated to spend $436 billion on benefits covered under Part A and Part B for beneficiaries in traditional Medicare. Medicare pays providers in traditional Medicare using various payment systems depending on the setting of care (Figure 11).

Medicare relies on a number of different approaches when determining payments to providers for Part A and Part B services delivered to beneficiaries in traditional Medicare. These providers include hospitals (for both inpatient and outpatient services), physicians, skilled nursing facilities, home health agencies, and several other types of providers. Of the $436 billion in estimated spending on Medicare benefits covered under Part A and Part B in traditional Medicare in 2023, $144 billion (33%) is for hospital inpatient services and $62 billion (14%) is for hospital outpatient services, $72 billion (17%) is for services covered under the physician fee schedule, and $158 billion (36%) is for all other Part A or Part B services for beneficiaries in traditional Medicare.

Medicare uses prospective payment systems for most providers in traditional Medicare. These systems generally require that Medicare pre-determine a base payment rate for a given unit of service (e.g. a hospital stay, an episode of care, a particular service). Then, based on certain variables, such as the provider’s geographic location and the complexity of the patient receiving the service, Medicare adjusts its payment for each unit of service provided. Medicare updates payment rates annually for most payment systems to account for inflation adjustments. 

The main features of hospital, physician, outpatient, and skilled nursing facility payment systems (altogether accounting for 70% of spending on Part A and Part B benefits in traditional Medicare) are described below:

• Inpatient hospitals (acute care): Medicare pays hospitals per beneficiary discharge using the Inpatient Prospective Payment System. The rate for each discharge corresponds to one of over 750 different categories of diagnoses – called Medicare Severity Diagnosis Related Groups (MS-DRGs), which reflect the principal diagnosis, secondary diagnoses, procedures performed, and other patient characteristics. DRGs that are likely to incur more intense levels of care and/or longer lengths of stay are assigned higher payments. Medicare’s payments to hospitals also account for a portion of hospitals’ capital and operating expenses.
• Medicare also makes additional payments to hospitals in particular situations. These include additional payments for rural or isolated hospitals that meet certain criteria. Further, Medicare makes additional payments to help offset costs incurred by hospitals that are not otherwise accounted for in the inpatient prospective payment system. These include add-on payments for treating a disproportionate share (DSH) of low-income patients, as well as for covering costs associated with care provided by medical residents, known as indirect medical education (IME). While not part of the Inpatient Prospective Payment System, Medicare also pays hospitals directly for the costs of operating residency programs, known as Graduate Medical Education (GME) payments.
• Physicians and other health professionals: Medicare reimburses physicians and other health professionals (e.g. nurse practitioners) based on the Physician Fee Schedule for over 10,000 services. Payment rates for these services are determined based on their relative value and other provider expenses, including malpractice insurance and office-based practice costs, which are all adjusted to account for differences across geography, and then are multiplied by a conversion factor, which is updated every year. Payment rates specified under the Physician Fee Schedule are subject to further adjustments under the Quality Payment Program, established by the Medicare Access and CHIP Reauthorization Act of 2015 (MACRA). Clinicians can receive payment increases if they participate in qualified advanced alternative payment models (A-APMs), which bear some financial risk for the costs of patient care, while those who participate in the Merit-based Incentive Payment System (MIPS) may receive payment increases or decreases (or no change) depending on their performance on specific quality measures. (See “What Is Medicare Doing to Promote Alternative Payment Models?” for more information about alternative payment models in Medicare.)
  • While not part of the Physician Fee Schedule, Medicare also pays for a limited number of drugs that physicians and other health care providers administer. For drugs administered by physicians, which are covered under Part B, Medicare reimburses providers based on a formula set at 106% of the Average Sales Price (ASP), which is the average price to all non-federal purchasers in the U.S, inclusive of rebates (other than rebates paid under the Medicaid program).

• Hospital outpatient departments: Medicare pays hospitals for ambulatory services provided in outpatient departments, using the Hospital Outpatient Prospective Payment System, based on the classification of individual services into Ambulatory Payment Classifications (APC) with similar characteristics and expected costs. Final determination of Medicare payments for outpatient department services is complex. It incorporates both individual service payments and payments “packaged” with other services, partial hospitalization payments, as well as numerous exceptions, such as payments for new technologies. Medicare payment rates for services provided in hospital outpatient departments are typically higher than for similar services provided in physicians’ offices, and evidence indicates that providers have shifted the billing of services to higher-cost settings. There is bipartisan interest in proposals to expand so-called “site-neutral” payments, meaning that Medicare would align payment rates for the same service across settings.
• Skilled Nursing Facilities (SNFs): SNFs are freestanding or hospital-based facilities that provide post-acute inpatient nursing or rehabilitation services. Medicare pays SNFs based on the Skilled Nursing Facility Prospective Payment System, and payments to SNFs are determined using a base payment rate, adjusted for geographic differences in labor costs, case mix, and, in some cases, length of stay. Daily rates consider six care components – nursing, physical therapy, occupational therapy, speech–language pathology services, nontherapy ancillary services and supplies, and non–case mix (room and board services).

Medicare Advantage. Medicare pays insurers offering Medicare Advantage plans a set monthly amount per enrollee. The payment is determined through an annual process in which plans submit “bids” for how much they estimate it will cost to provide benefits covered under Medicare Parts A and B for an average beneficiary. The bid is compared to a county “benchmark”, which is the maximum amount the federal government will pay for a Medicare Advantage enrollee and is a percentage of estimated spending in traditional Medicare in the same county, ranging from 95 percent in high-cost counties to 115 percent in low-cost counties. When the bid is below the benchmark in a given county, plans receive a portion of the difference (“the rebate”), which they must use to lower cost sharing, pay for extra benefits, or reduce enrollees’ Part B or Part D premiums. Payments to plans are risk adjusted, based on the health status and other characteristics of enrollees, including age, sex, and Medicaid enrollment. In addition, Medicare adopted a quality bonus program that increases the benchmark for plans that receive at least four out of five stars under the quality rating system, which increases plan payments.

Generally, Medicare pays more to private Medicare Advantage plans for enrollees than their costs would be in traditional Medicare. The Medicare Payment Advisory Commission (MedPAC) reports that while it costs Medicare Advantage insurers 82% of what it costs traditional Medicare to pay for Medicare-covered services, plans receive payments from CMS that are 122% of spending for similar beneficiaries in traditional Medicare, on average. The higher spending stems from features of the formula used to determine payments to Medicare Advantage plans, including setting benchmarks above traditional Medicare spending in half of counties and higher benchmarks due to the quality bonus program, resulting in bonus payments of nearly $13 billion in 2023. This amount is more than four times greater than spending on bonus payments in 2015 (Figure 12).

The higher spending in Medicare Advantage is also related to the impact of coding intensity, where Medicare Advantage enrollees look sicker than they would if they were in traditional Medicare, resulting in plans receiving higher risk adjustments to their monthly per person payments, translating to an estimated $83 billion in excess payments to plans in 2024.

Higher payments to Medicare Advantage allow plans to offer extra benefits attractive to enrollees. However, these benefits come at a cost to all beneficiaries through higher premiums and contribute to the strain on the Medicare Part A Hospital Insurance Trust Fund. (See “How Much Does Medicare Spend and How Is the Program Financed?” for additional information.)

Medicare Part D. Medicare pays Part D plans, both stand-alone prescription drug plans and Medicare Advantage plans that offer drug coverage, based on an annual competitive bidding process. Plans submit bids yearly to Medicare for their expected costs of providing the drug benefit plus administrative expenses. Plans receive a direct subsidy per enrollee, which is risk-adjusted based on the health status of their enrollees, plus reinsurance payments from Medicare for the highest-cost enrollees and adjustments for the low-income subsidy (LIS) status of their enrollees. (Unlike Medicare Advantage, there is no quality bonus program that provides higher payments to Part D plans with higher Part D quality ratings.) Risk-sharing arrangements with the federal government (“risk corridors”) limit plans’ potential total losses or gains.

Under reinsurance, Medicare currently subsidizes 80% of total drug spending incurred by Part D enrollees with relatively high drug spending above the catastrophic coverage threshold and plans pay 20% in 2024 (up from 15% in prior years). In the aggregate, Medicare’s reinsurance payments to Part D plans accounted for close to half of total Part D spending (48%) in 2022, up from 14% in 2006 (increasing from $6 billion in 2006 to $57 billion in 2022) (Figure 13).

Beginning in 2025, under a provision of the Inflation Reduction Act, Medicare’s share of costs for brand-name drugs above the catastrophic threshold will decrease from 80% to 20%, shifting more of the responsibility for these costs to Part D plans and drug manufacturers. (See “What Is the Medicare Part D Prescription Drug Benefit?” for more detail on plan liability under various phases of the Part D benefit and more information on changes to Part D included in the Inflation Reduction Act.)

For 2024, Medicare’s actuaries estimate that Part D plans will receive direct subsidy payments averaging $383 per enrollee overall, $2,588 for enrollees receiving the LIS, and $1,153 in reinsurance payments for very high-cost enrollees.

While Medicare has traditionally paid providers on a fee-for-service basis, the program is implementing various alternative payment models designed to tie payments under traditional Medicare to provider performance on quality and spending. Although the overarching goals of these various models are similar—improving the quality and affordability of patient care, advancing health equity, and reducing health care costs—the specific aims vary by model.

A notable example of an alternative payment model within Medicare is the Medicare Shared Savings Program (MSSP), a permanent accountable care organization (ACO) program in traditional Medicare established by the Affordable Care Act (ACA) that offers financial incentives to providers for meeting or exceeding savings targets and quality goals. ACOs are groups of doctors, hospitals, and other health care providers who voluntarily form partnerships to collaborate and share accountability for the quality and cost of care delivered to their patients. The MSSP currently offers different participation options to ACOs, allowing these organizations to share in savings only or both savings and losses, depending on their level of experience and other factors.

ACOs have a defined patient population for the purpose of calculating annual savings or losses. Beneficiaries in traditional Medicare may choose to align themselves to an ACO (voluntary alignment) or may be assigned to a particular ACO based on where they received a plurality of their primary care services. In either case, beneficiaries are free to seek treatment from any provider who accepts Medicare and are not limited to ACO-affiliated providers. This contrasts with enrollment in Medicare Advantage, where beneficiaries are generally limited to seeing providers in their plan’s network or face higher out-of-pocket costs for seeing out-of-network providers.

In 2022, the Medicare Shared Savings Program saved Medicare an estimated $1.8 billion relative to annual spending targets. As of 2023, there are 456 MSSP ACOs nationwide, with over 573,000 participating clinicians and 10.9 million beneficiaries aligned to MSSP ACOs (Figure 14).

The ACA also established the Center for Medicare and Medicaid Innovation (CMMI, also known as the Innovation Center), an operating center within the Centers for Medicare & Medicaid Services tasked with designing and testing alternative payment models to address concerns about rising health care costs, quality of care, and inefficient spending within the Medicare, Medicaid, and CHIP programs. Since its start in 2010, CMMI has launched more than 70 models across six different categories, including accountable care models, disease-specific models, health plan models, and others (Figure 15). CMMI models are designed to be tested over a limited number of years, but Congress gave CMMI the authority to expand models nationwide permanently if they meet certain quality and savings criteria. As of 2023, six models have shown statistically significant savings, and four have met the requirements for permanent expansion into the wider Medicare program, including the Medicare Diabetes Prevention Program and the Home Health Value-Based Purchasing Model.

According to the Congressional Budget Office (CBO), the activities of CMMI increased federal spending by $5.4 billion from 2011 to 2020, which CBO attributes in part to the mixed success of many models at generating sufficient savings to offset their high upfront costs. (CBO had initially projected that CMMI would reduce federal spending by $2.8 billion in its first decade of operation.) However, a review of select CMMI models provides evidence of improvements in care coordination, team-based care, and other care delivery changes, even in the absence of savings. CBO projects that CMMI’s activities will come closer to the breakeven point regarding federal spending over the next decade (2024-2033).

Spending. Medicare plays a significant role in the health care system, accounting for 21% of total national health spending in 2021, 26% of spending on both hospital care and physician and clinical services, and 32% of spending on retail prescription drug sales (Figure 16).

In 2022, Medicare spending, net of income from premiums and other offsetting receipts, totaled $747 billion and accounted for 12% of the federal budget—a similar share as spending on Medicaid, the ACA, and the Children’s Health Insurance Program combined, and defense spending (Figure 17).

In 2023, Medicare benefit payments are estimated to total $1 trillion, up from $583 billion in 2013 (including spending for Part A, Part B, and Part D benefits in both traditional Medicare and Medicare Advantage). Medicare spending per person has also grown, increasing from $5,800 to $15,700 between 2000 and 2022 – or 4.6% average annual growth over the 22-year period. In recent years, however, growth in Medicare spending per person has been lower in Medicare than in private health insurance.

Spending on Medicare Part A benefits (mainly hospital inpatient services) has decreased as a share of total Medicare spending over time as care has shifted from inpatient to outpatient settings, leading to an increase in spending on Part B benefits (including physician services, outpatient services, and physician-administered drugs). Spending on Part B services now accounts for the largest share of Medicare benefit spending (49% in 2023) (Figure 18). Moving forward, Medicare spending on physician services and other services covered under Part B is expected to grow to more than half of total Medicare spending by 2033, while spending on hospital care and other services covered under Part A is projected to decrease further as a share of the total.

Payments to Medicare Advantage plans for Part A and Part B benefits tripled as a share of total Medicare spending between 2013 and 2023, from $145 billion to $454 billion, partly due to steady enrollment growth in Medicare Advantage plans. Growth in spending on Medicare Advantage also reflects that Medicare pays more to private Medicare Advantage plans for enrollees than their costs in traditional Medicare, on average. (See “How Does Medicare Pay Private Plans in Medicare Advantage and Medicare Part D?” for additional information.) These higher payments have contributed to growth in spending on Medicare Advantage and overall Medicare spending. In 2023, just over half of all Medicare program spending for Part A and Part B benefits was for Medicare Advantage plans, up from just under 30% in 2013. Between 2023 and 2033, Medicare Advantage payments are projected to total nearly $8 trillion, $2 trillion more than spending under traditional Medicare (Figure 19).

Financing. Medicare funding, which totaled $989 billion in 2022, comes primarily from general revenues (43%), payroll tax revenues (36%), and premiums paid by beneficiaries (16%). Other sources include taxes on Social Security benefits, payments from states, and interest.

The different parts of Medicare are funded in varying ways, and revenue sources dedicated to one part of the program cannot be used to pay for another part (Figure 20).

• Part A, which covers inpatient hospital stays, skilled nursing facility (SNF) stays, some home health visits, and hospice care, is financed primarily through a 2.9% tax on earnings paid by employers and employees (1.45% each). Higher-income taxpayers (more than $200,000 per individual and $250,000 per couple) pay a higher payroll tax on earnings (2.35%). Payroll taxes accounted for 89% of Part A revenue in 2022.
• Part B, which covers physician visits, outpatient services, preventive services, and some home health visits, is financed primarily through a combination of general revenues (71% in 2022) and beneficiary premiums (28%) (and 1% from interest and other sources). The standard Part B premium that most Medicare beneficiaries pay is calculated as 25% of annual Part B spending, while beneficiaries with annual incomes over $103,000 per individual or $206,000 per couple pay a higher, income-related Part B premium reflecting a larger share of total Part B spending, ranging from 35% to 85%.
• Part D, which covers outpatient prescription drugs, is financed primarily by general revenues (74%) and beneficiary premiums (14%), with an additional 11% of revenues coming from state payments for beneficiaries enrolled in both Medicare and Medicaid. Higher-income enrollees pay a larger share of the cost of Part D coverage, as they do for Part B.
• The Medicare Advantage program (sometimes referred to as Part C) does not have its own separate revenue sources. Funds for Part A benefits provided by Medicare Advantage plans are drawn from the Medicare HI trust fund. Funds for Part B and Part D benefits are drawn from the Supplementary Medical Insurance (SMI) trust fund. Beneficiaries enrolled in Medicare Advantage plans pay the Part B premium and may pay an additional premium if required by their plan. In 2023, 73% of Medicare Advantage enrollees pay no additional premium.

Measuring the level of reserves in the Medicare Hospital Insurance trust fund, out of which Part A benefits are paid, is a common way of measuring Medicare’s financial status. Each year, Medicare’s actuaries provide an estimate of the year when the reserves are projected to be fully depleted. In 2024, the Medicare Trustees projected sufficient funds would be available to pay for Part A benefits in full until 2036, 12 years from now. At that point, in the absence of Congressional action, Medicare will be able to pay 89% of costs covered under Part A using payroll tax revenues. Since 2010, the projected year of trust fund reserve depletion has ranged from 5 years out (in 2021) to 19 years out (in 2010) (Figure 21).

The level of reserves in the Part A Trust Fund is affected by growth in the economy, which affects revenue from payroll tax contributions, health care spending and utilization trends, and demographic trends: an increasing number of beneficiaries as the population ages, especially between 2010 and 2030 when the baby boom generation reaches Medicare eligibility age, and a declining ratio of workers per beneficiary making payroll tax contributions. 

Part B and Part D do not have financing challenges similar to Part A, because both are funded by beneficiary premiums and general revenues that are set annually to match expected outlays. However, future increases in spending under Part B and Part D will require increases in general revenue funding and higher premiums paid by beneficiaries.

Looking to the future, Medicare faces a number of challenges from the perspective of beneficiaries, health care providers and private plans, and the federal budget. These include:

• How best to address the fiscal challenges arising from an aging population and increasing health care costs through spending reductions and/or revenue increases.
• Whether and how to improve coverage for Medicare beneficiaries, including an out-of-pocket limit in traditional Medicare, enhanced financial support for lower-income beneficiaries, and additional benefits, such as dental and vision.
• How to control spending while ensuring fair and adequate payments to hospitals, physicians and other providers, and Medicare Advantage plans, including whether and how to reduce overpayments to Medicare Advantage plans.
• How to address the implications for traditional Medicare of rapid growth in Medicare Advantage enrollment.

Consideration of possible changes to Medicare will involve careful deliberation about the potential implications for federal spending and taxpayers, the solvency of the Medicare Hospital Insurance trust fund, total health care spending, the affordability of health care for Medicare’s growing number of beneficiaries, many of whom have limited incomes, and access to high-quality medical care.

• What to Know about Medicare Spending and Financing
• An Overview of the Medicare Part D Prescription Drug Benefit
• Medicare Advantage in 2023: Enrollment Update and Key Trends
• Key Facts About Medicare Part D Enrollment and Costs in 2023
• What to Know about the Medicare Open Enrollment Period and Medicare Coverage Options
• Explaining the Prescription Drug Provisions in the Inflation Reduction Act
• A Snapshot of Sources of Coverage Among Medicare Beneficiaries
• Spending on Medicare Advantage Quality Bonus Payments Will Reach at Least $12.8 Billion in 2023
• FAQs about the Inflation Reduction Act’s Medicare Drug Price Negotiation Program
• How Many Physicians Have Opted Out of the Medicare Program?
• The Facts About Medicare Spending
• Medicare Part D in 2024: A First Look at Prescription Drug Plan Availability, Premiums, and Cost Sharing
• Medicare Advantage 2024 Spotlight: First Look
• Income and Assets of Medicare Beneficiaries in 2023

Cubanski, J., Freed, M., Ochieng, N., Cottrill, A., Fuglesten Biniek, J., & Neuman, T., Medicare 101. In Altman, Drew (Editor), Health Policy 101, (KFF, May 28, 2024) https://www.kff.org/health-policy-101-medicare/ (date accessed).

Medicaid is the primary program providing comprehensive coverage of health care and long-term services and supports to about 80 million low-income people in the United States. Medicaid accounts for one-sixth of health care spending (and half of spending for long-term services and supports) and a large share of state budgets. Medicaid is jointly financed by states and the federal government, but administered by states within broad federal rules. Because states have the flexibility to determine what populations and services to cover, how to deliver care, and how much to reimburse providers, there is significant variation across states in program spending and the share of people covered by the program.

Medicaid is the primary program providing comprehensive coverage of health care and long-term services and supports to about 80 million low-income people in the United States. Medicaid accounts for one-sixth of health care spending (and half of spending for long-term services and supports) and a large share of state budgets (Figure 1).

Subject to federal standards, states administer Medicaid programs and have flexibility to determine what populations and services to cover, how to deliver care, and how much to reimburse providers. States can obtain Section 1115 waivers to test and implement approaches that differ from what is required by federal statute if the Secretary of Health and Human Services (HHS) determines the waivers would advance program objectives. Because of this flexibility, there is significant variation across state Medicaid programs, and as a result, the share of state residents covered by the program (Figure 2).

Title XIX of the Social Security Act and a large body of federal regulations and sub-regulatory guidance govern the program, defining federal Medicaid requirements and states’ options and authorities. At the federal level, the Centers for Medicare and Medicaid Services (CMS) within the Department of Health and Human Services (HHS) administers Medicaid and oversees states’ programs. States may choose to participate in Medicaid, but if they do, they must comply with core federal requirements. Not all states opted to participate in Medicaid immediately after its enactment in 1965, but by the 1980s, all states had opted in. Medicaid coverage was historically tied to cash assistance—either Aid to Families with Dependent Children (AFDC) or federal Supplemental Security Income (SSI). Over time, Congress expanded federal minimum requirements and provided new coverage requirements and options for states, especially for children, pregnant women, and people with disabilities. In 1996, legislation replaced Aid to Families with Dependent Children with Temporary Assistance to Needy Families (TANF) and severed the link between Medicaid eligibility and cash assistance for children, pregnant women, and low-income parents. The Children’s Health Insurance Program (CHIP) was established in 1997 to cover low-income children above the cut-off for Medicaid with an enhanced federal match rate (Figure 3).

In 2010, the Affordable Care Act (ACA) expanded Medicaid to nearly all nonelderly adults with income up to 138% FPL ($20,780 annually for an individual in 2024) through a new coverage pathway for adults without dependent children who had traditionally been excluded from Medicaid coverage. However, the ACA Medicaid expansion coverage is effectively optional for states because of a 2012 Supreme Court ruling. As of March 2024, 41 states, including Washington, D.C., have expanded Medicaid (Figure 4). States receive a higher rate of federal matching funding for people who are enrolled through the new coverage pathway. Under the ACA, all states were also required to modernize and streamline Medicaid eligibility and enrollment processes to help individuals obtain and maintain coverage.

The COVID-19 pandemic profoundly affected Medicaid spending and enrollment. At the start of the pandemic, Congress enacted legislation that included a requirement that Medicaid programs keep people continuously enrolled in exchange for enhanced federal funding. As a result, Medicaid/CHIP enrollment grew substantially, and the uninsured rate dropped. The unwinding of these provisions started on April 1, 2023, and have been disenrolled from Medicaid, likely reversing recent improvements in the uninsured rate. In addition to the unwinding, many federal and state policymakers have been focused on how Medicaid can be used as a lever to help address health disparities, expand access to care, improve access to behavioral health and home and community-based services, and address workforce challenges.

States are guaranteed federal matching dollars without a cap for qualified services provided to eligible enrollees. The match rate for most Medicaid enrollees is determined by a formula in the law that provides a match of at least 50% and provides a higher federal match rate for states with lower per capita income (Figure 5). States may receive a higher match rate for certain services and populations. The ACA expansion group is financed with a 90% federal match rate, so states pay 10%, and the American Rescue Plan Act included an additional temporary fiscal incentive to states that newly adopt the Medicaid expansion. In FY 2022, Medicaid spending totaled $804 billion of which 71% was federal spending. Medicaid spending growth typically accelerates during economic downturns as enrollment increases. Spending growth also peaked after the implementation of the ACA and, more recently, due to enrollment growth tied to the pandemic-related continuous enrollment provision.

Overall, Medicaid accounts for a large share of most states’ budgets and is often central to state fiscal decisions; however, state spending on Medicaid is second to state spending on elementary and secondary education, and the program is also the largest source of federal revenue for states. In state fiscal year 2022, Medicaid accounted for 29% of total state expenditures, 15% of expenditures from state funds (general funds and other funds), and 52% of expenditures from federal funds received by the state.

Social Security, Medicare, and Medicaid are the three main entitlement programs, accounting for 44% of all federal outlays in FFY 2023. Of these three programs, Medicaid is the smallest in terms of federal outlays, though it covers more people than Medicare or Social Security. Overall, federal spending on domestic and global health programs and services accounted for 29% of net federal outlays in FFY 2023, including spending on Medicare (13%), Medicaid and CHIP (10%), and other health spending (6%). Dating back to the 1980s, there have been efforts to limit federal financing for Medicaid either through a block grant to states or through a cap on spending per enrollee as a way to help reduce federal spending. Such efforts may shift costs to states, providers or enrollees and have been blocked to date but could emerge again.

Medicaid is an entitlement, meaning individuals who meet eligibility requirements are guaranteed coverage. The federal government sets minimum eligibility standards, but states may expand coverage beyond these minimum requirements.  Federal minimum eligibility levels for children and pregnant women are set at 133% of the federal poverty level (FPL) ($35,630 for a family of 3 in 2024); however, median eligibility levels for these groups were 255% FPL for children and 207% FPL for pregnant women as of January 2023. As a result of the ACA, the median coverage level for parents and adults without dependent children is 138% FPL, but for states that have not adopted the ACA expansion, the median eligibility for parents was 38% FPL. In non-expansion states, adults without dependent coverage are not eligible for Medicaid coverage and those with incomes below poverty fall into the coverage gap.

Medicaid coverage is also available to certain individuals who qualify on the basis of being age 65 and older or having a disability. These coverage categories are referred to as “non-MAGI” pathways because they do not use the Modified Adjusted Gross Income (MAGI) financial methodology that applies to pathways for pregnant people, parents, and children with low incomes. In addition to considering advanced age, disability status, and income, many non-MAGI pathways also have asset limits. Medicaid generally covers individuals who qualify for Supplemental Security Income (SSI), but nearly all other non-MAGI pathways are optional, resulting in substantial state variation.  Each group has different rules about income and assets, making eligibility complex (Figure 6).

Medicaid coverage is limited for immigrants, and except for emergency services, Medicaid coverage is not available for undocumented immigrants. A number of states, however, use state funds to provide coverage to all or some undocumented immigrants.

While Medicaid covers 1 in 5 people living in the United States, Medicaid is a particularly significant source of coverage for certain populations. In 2022, Medicaid covered 4 in 10 children, 8 in 10 children in poverty, 1 in 6 adults, and 6 in 10 nonelderly adults in poverty. Relative to White children and adults, Medicaid covers a higher share of Black, Hispanic, and American Indian or Alaska Native (AIAN) children and adults. Medicaid covers 44% of nonelderly, noninstitutionalized adults with disabilities, who are defined as having one or more difficulty related to hearing, vision, cognition, ambulation, self-care, or independent living (Figure 7).

Medicaid provides coverage for a number of special populations.  For example, Medicaid covers 41% of all births in the United States, nearly half of children with special health care needs, 5 in 8 nursing home residents, 23% of non-elderly adults with any mental illness, and 40% of non-elderly adults with HIV. Medicaid pays Medicare premiums and often provides wraparound coverage for services not covered by Medicare (like most long-term services and supports) for nearly 1 in 5 Medicare beneficiaries (13 million).  Medicaid is a key source of coverage for individuals experiencing homelessness and those transitioning out of carceral settings, particularly in states that have adopted the Medicaid expansion.

Among the non-elderly covered by Medicaid, nearly half are children under age 19, 6 in 10 are people of color, 57% are female, and three-quarters are in a family with a full- or part-time worker. Even though most adult Medicaid enrollees are working, many do not have an offer of employer-sponsored coverage, or it is not available.

Medicaid covers a broad range of services to address the diverse needs of the populations it serves. In addition to covering the services required by federal Medicaid law, all states elect to cover at least some services that are not mandatory (Figure 8). All states cover prescription drugs, and most states cover physical therapy, eyeglasses, and dental care. Medicaid provides comprehensive benefits for children, known as Early Periodic Screening Diagnosis and Treatment (EPSDT) services. EPSDT is especially important for children with disabilities because it allows children access to a broader set of benefits to address complex health needs than what is traditionally covered by private insurance. Unlike commercial health insurance and Medicare, Medicaid also covers non-emergency medical transportation, which helps enrollees get to appointments, and long-term care, including nursing home care and many home and community-based services (HCBS). Coverage for long-term services and supports is mandatory for nursing facilities, but most coverage of HCBS is optional. In recent years, states have expanded coverage of behavioral health services and benefits to help enrollees address social determinants of health (SDOH) like nutrition or housing.

Most people ages 65 and older and many people under age 65 with disabilities have Medicare, but Medicare does not cover most LTSS; instead, Medicaid is the primary payer for LTSS. LTSS encompass the broad range of paid and unpaid medical and personal care services that assist with activities of daily living (such as eating, bathing, and dressing) and instrumental activities of daily living (such as preparing meals, managing medication, and housekeeping). They are provided to people who need such services because of aging, chronic illness, or disability. These services include nursing facility care, adult daycare programs, home health aide services, personal care services, transportation, and supported employment. They may be provided over several weeks, months, or years, depending on an individual’s health care coverage and level of need. There have been longstanding challenges finding enough workers to provide LTSS for all people who need such services, and the COVID-19 pandemic exacerbated those issues considerably. As the population ages and advances in medicine and technology enable people with serious disabilities to live longer, the number of people in need of LTSS is expected to grow.

In 2023, the median annual costs of care in the U.S. were $116,800 for a private room in a nursing home, $64,200 for an assisted living facility, and $75,504 for a home health aide. Medicare provides home health and skilled nursing facility care under specific circumstances, but the Medicare benefit is considered “post-acute” care and generally not available for people needing services on an ongoing basis. Medicaid plays a key role in access to LTSS for people who qualify because LTSS costs are difficult for most people to afford when paying out-of-pocket. In some cases, people only qualify for Medicaid after exhausting their savings on the costs of LTSS. In 2022, Medicaid paid 58% of the $438 billion spent on LTSS in the U.S. (Figure 9).

LTSS may be provided in various settings broadly categorized as institutional or non-institutional. Institutional settings include nursing facilities and intermediate care facilities for people with intellectual disabilities. Services provided in non-institutional settings are known as home and community-based services (HCBS), and these settings may include a person’s home, adult day care centers, assisted living settings, and group homes. Federal Medicaid statutes require states to cover institutional LTSS and home health, but the remainder of HCBS are optional. Even without a mandate to cover HCBS, Medicaid LTSS spending has shifted from institutional to non-institutional settings over time. In 2022, most spending for LTSS in the U.S. was for HCBS. That shift reflects beneficiary preferences for receiving care in non-institutional settings and requirements for states to provide services in the least restrictive setting possible stemming from the Olmstead decision. In 2021, there were 5.7 million people who used Medicaid LTSS, of which 4.3 million (75%) used only HCBS, 1.2 million (21%) used only institutional care, and 0.2 million used both (4%). While, overall, three-quarters of people who used Medicaid LTSS were exclusively served in home and community-based settings, the share varied across states (Figure 10).  To qualify for coverage of LTSS under Medicaid, people must meet state-specific eligibility requirements regarding their levels of income, wealth, and functional limitations.

Managed care is the dominant delivery system for Medicaid enrollees with 74% of Medicaid beneficiaries enrolled in comprehensive managed care organizations (MCOs). Medicaid MCOs provide comprehensive acute care and, in some cases, long-term services and supports to Medicaid beneficiaries and are paid a set per member per month payment for these services. In FFY 2022, payments to managed care and health plans accounted for the largest share (55%) of Medicaid spending, with capitated payments to comprehensive MCOs accounting for 52% of Medicaid spending and payments to other Medicaid managed care (e.g. primary care case management (PCCM) arrangements or specialty plans) accounting for another 3% (Figure 11). Smaller shares of total Medicaid spending in FFY 2022 were for fee-for-service acute care (20%), fee-for-service long-term services and supports (19%), Medicaid spending for Medicare premiums on behalf of enrollees who also have Medicare (3%), and disproportionate share hospital (DSH) payments (2%).

Medicaid spending is driven by multiple factors, including the number and mix of enrollees, their use of health care and long-term services and supports, the prices of Medicaid services, and state policy choices about benefits, provider payment rates, and other program factors. During economic downturns, enrollment in Medicaid grows, increasing state Medicaid costs while state tax revenues are declining. Due to the federal match, as spending increases during economic downturns, so does federal funding. During the pandemic-induced recession and the two economic downturns prior to the pandemic, Congress enacted legislation that temporarily increased the federal share of Medicaid spending to provide increased support for states to help fund Medicaid. High enrollment growth rates, tied first to the Great Recession, then ACA implementation, and later the pandemic, were the primary drivers of total Medicaid spending growth over the last two decades (Figure 12).

People eligible based on being age 65 or older or based on a disability comprise 1 in 4 enrollees but account for more than half of Medicaid spending, reflecting high health care needs and in many cases, use of long-term services and supports (Figure 13).

Across the states, spending per enrollee ranged from a low of $4,500 in South Carolina to $12,008 in the District of Columbia in 2021. Variation in spending across the states reflects considerable flexibility for states to design and administer their own programs – including what benefits are covered and how much providers are paid — and variation in the health and population characteristics of state residents. Within each state, there is also substantial variation in the average costs for each eligibility group, and within each eligibility group, per-enrollee costs may vary significantly, particularly for individuals eligible based on disability (Figure 14).

In 2021, people who used Medicaid LTSS comprised 6% of Medicaid enrollment but 34% of federal and state Medicaid spending (Figure 15). High per-person Medicaid spending among enrollees who use LTSS likely reflects the generally high cost of LTSS and more extensive health needs among such groups that lead to higher use of other health care services and drugs as well.

As of July 2023, 41 states (including Washington, D.C.) contract with comprehensive, risk-based managed care plans – often administered by private insurance companies — to provide care to at least some of their Medicaid beneficiaries (Figure 16). Medicaid MCOs provide comprehensive acute care and, in some cases, LTSS to Medicaid beneficiaries and are paid a set per member per month payment for these services. States have traditionally used managed care models to increase budget predictability, constrain Medicaid spending, and improve access to care and value. While the shift to MCOs has increased budget predictability for states, the evidence about the impact of managed care on access to care and costs is both limited and mixed. Children and adults are more likely to be enrolled in MCOs than adults aged 65 and older and people eligible because of a disability; however, states are increasingly including beneficiaries with complex needs in MCOs. States are also increasingly leveraging Medicaid MCOs to help identify and address social determinants of health and to reduce health disparities.

A large body of research shows that Medicaid beneficiaries have substantially better access to care than people who are uninsured (who are also primarily low-income) and are less likely to postpone or go without needed care due to cost. Key measures of access to care and satisfaction with care among Medicaid enrollees are comparable to rates for people with private insurance (Figure 17). Given that Medicaid enrollees have low incomes, federal rules generally have protections to limit out-of-pocket costs that can help improve access. An analysis of data from a KFF Survey of Consumer Experiences with Health Insurance finds that Medicaid enrollees report fewer cost-related problems relative to those with Marketplace coverage and employer coverage.

Longstanding research shows that Medicaid eligibility during childhood is associated with positive effects on health and have positive impacts beyond health, such as improved long-run educational attainment. Early and updated research findings show that state Medicaid expansions to adults are associated with increased access to care, improved self-reported health status, reduced mortality among adults, and increases in economic security.

Gaps in access to certain providers, particularly psychiatrists and dentists, are ongoing challenges in Medicaid. These and other gaps in access tend to mirror system-wide access problems that affect Medicare and the private insurance market, but they are exacerbated in Medicaid by provider shortages in low-income communities, Medicaid’s lower physician payment rates, and lower provider participation in Medicaid compared with private insurance. In 2021, MACPAC found physicians were less likely to accept new Medicaid patients (74%) than those with Medicare (88%) or private insurance (96%), but these rates may vary by state, provider type and setting. Medicaid acceptance was much higher where physicians practiced in community health centers, mental health centers, non-federal government clinics, and family clinics compared to the average for all settings. Provider participation rates may contribute to findings that Medicaid enrollees may experience more difficulty obtaining health care than those with private insurance.  A KFF survey of Consumers shows that Medicaid enrollees report more problems with prior authorization and provider availability compared to people with other insurance types.

The majority of states have 1115 demonstration waivers to test approaches not otherwise allowed under federal law. Section 1115 demonstration waivers offer states the ability to test new approaches in Medicaid that differ from what is required by federal statute, if CMS determines that such proposals are “likely to assist in promoting the objectives of the Medicaid program.” Section 1115 waivers have been used over time and generally reflect priorities identified by the states and CMS, but they also reflect changing priorities from one presidential administration to another. Under different administrations, waivers have been used to expand coverage, modify delivery systems, and restructure financing and other program elements. Nearly all states have at least one 1115 waiver in place, and many have waivers pending with CMS (Figure 18).

Activity from the Trump Administration and into the Biden Administration has tested how these waivers can be used to advance administrative priorities and has also tested the balance between states’ flexibility and discretion by the federal government. The Trump Administration’s Section 1115 waiver policy emphasized work requirements and other eligibility restrictions, payment for institutional behavioral health services, and capped financing. The Biden Administration withdrew waiver approvals with work requirements, phased out approval of premium requirements, and has instead encouraged states to propose waivers that expand coverage, reduce health disparities, and/or advance “whole-person care.” Recent areas of focus have included leveraging Medicaid to address health-related social needs and to provide health care to individuals transitioning from incarceration back into the community. A few states have also sought approval to provide continuous Medicaid coverage for children and certain adults for periods longer than a year.

Various types of waivers and other emergency authorities can also be used to help respond in emergencies. Such authorities can help expand Medicaid capacity and focus on specific services, providers, or groups of enrollees that are particularly impacted. During the COVID-19 pandemic, all 50 states and Washington, D.C. received approval to make changes using emergency authorities to facilitate access to care by expanding telehealth, eligibility, benefits and help address workforce issues for home- and community-based services.

The expiration of the COVID-19 public health emergency (PHE) in May 2023 had implications across the health care system for costs, coverage and access. States needed to unwind many Medicaid emergency policies that were in place or transition policies to more permanent authorities. For example, a number of states were adopting changes in telehealth and some home- and community-based services more permanently.

Looking to the future, Medicaid faces a number of challenges, including: 

• How has Medicaid enrollment changed since the start of the unwinding of the continuous enrollment provision and how will these changes affect the uninsured and other coverage trends?
• What Medicaid strategies can be used to improve access to services, particularly for behavioral health?
• What policies may help bolster support for Medicaid providers as states experience challenges with reimbursement rates and provider shortages, particularly for LTSS as demand increases?
• What new federal and state efforts will be used to leverage Medicaid to help address racial health disparities and social determinants of health and how effective will these strategies be?
• What federal and state fiscal issues will emerge and how will these issues affect Medicaid financing and federal and state budgets? 

Policy changes to Medicaid have implications for the roughly 80 million people who rely on the program for health coverage, state and federal budgets and spending, and health care providers, including nursing facilities and home and community-based service providers. Changes in Medicaid enrollment also typically have implications for overall coverage trends. When more people have Medicaid coverage, the uninsured rate typically falls, and when individuals lose Medicaid coverage, the number of uninsured typically increases. 

• 10 Things to Know About Medicaid
• Medicaid: What to Watch in 2024
• Medicaid Financing: The Basics
• 10 Things to Know About Medicaid Managed Care
• 10 Things About Long-Term Services and Supports (LTSS)
• 50-State Medicaid Budget Survey Archives
• 10 Things to Know About the Unwinding of the Medicaid Continuous Enrollment Provision
• Medicaid Enrollment and Unwinding Tracker
• Status of State Medicaid Expansion Decisions: Interactive Map
• Medicaid Waiver Tracker: Approved and Pending Section 1115 Waivers by State

Rudowitz, R., Tolbert, J., Burns, A., Hinton, E., & Mudumala, A., Medicaid 101. In Altman, Drew (Editor), Health Policy 101, (KFF, May 28, 2024) https://www.kff.org/health-policy-101-medicaid/ (date accessed).

On March 23, 2010, President Obama signed the Affordable Care Act (ACA) into law, marking a significant overhaul of the U.S. health care system. Prior to the ACA, high rates of uninsurance were prevalent due to unaffordability and exclusions based on preexisting conditions. Additionally, some insured people faced extremely high out-of-pocket (OOP) costs and coverage limits. The ACA aimed to address these issues, though it did not eliminate all of them.

The ACA affects virtually all aspects of the health system, including insurers, providers, state governments, employers, taxpayers, and consumers. The law built on the existing health insurance system, making changes to Medicare, Medicaid, and employer-sponsored coverage. A fundamental change was the introduction of regulated health insurance exchange markets, or Marketplaces, which offer financial assistance for ACA-compliant coverage to those without traditional insurance sources. This chapter has a special focus on these Marketplaces that are integral to the ACA’s framework.

A key goal of the ACA was to expand health insurance coverage. It did so by expanding Medicaid to people with incomes up to 138% of the federal poverty level (the poverty level in the continental U.S. is $15,060 for a single individual in 2024); creating new health insurance exchange markets through which individuals can purchase coverage and receive financial help to afford premiums and cost-sharing, in addition to separate exchange markets through which small businesses can purchase coverage; and requiring employers that do not offer affordable coverage to pay penalties, with exceptions for small employers. In the years leading up to the passage of the ACA, about 14-16% of people in the United States were uninsured (across all ages). By 2023, the uninsured rate had fallen to a record low of 7.7%. Most of the gains in insurance coverage have come from the ACA’s expansion of Medicaid, followed by the creation of the exchange markets.

For people with private health insurance, the ACA also includes several consumer protections and market rules (discussed in more detail in the chapter on regulation of private insurance). For example, the ACA prohibits health plans from denying people coverage, charging them higher premiums, as well as rescinding or imposing exclusions to coverage due to preexisting health conditions. The ACA also prohibits annual and lifetime limits on the dollar amount of coverage and restricts the amount of out-of-pocket costs individuals and families may incur each year for in-network care. Additionally, the law requires most health plans to cover preventive health services with no out-of-pocket costs. Health insurers must also issue rebates to enrollees and businesses each year if they fail to meet Medical Loss Ratio standards. Moreover, people with private coverage can keep their young adult children on their health plan up to age 26.

The ACA imposes additional new regulations on private health plans sold to individuals and small businesses. These rules significantly limit the ways in which health plans can charge higher premiums. ACA-compliant health plans sold on the individual and small group markets can only vary premiums based on location, family size, tobacco use, and age (with older adults being charged no more than three times younger adults). This means that people with preexisting conditions cannot be charged higher premiums, nor can insurers charge higher rates based on gender or other factors. The ACA requires individual and small group insurers planning to increase premiums significantly to justify those rate increases publicly and also included grants for states to improve their rate review programs. The ACA also created risk programs in the individual and small group markets to mitigate adverse selection and to reduce health insurers’ incentives to avoid attracting sicker enrollees.

While Medicaid expansion is one of the most impactful provisions of the ACA, the law changed Medicaid in other ways too. For example, people gaining coverage through the Medicaid expansion are guaranteed a benchmark benefit package that covers essential health benefits. Furthermore, the ACA required state Medicaid programs to cover preventive services without cost sharing. The law also increased Medicaid payments to primary care providers, provided new options for states to cover in-home and community-based care, increased Medicaid drug rebates, and extended those rebates to Medicaid managed care plans.

The ACA also made a number of changes to Medicare. Notably, the ACA phased out the Medicare Part D prescription drug benefit coverage gap (colloquially known as the “donut hole”) and provides preventive benefits for Medicare enrollees without cost-sharing. The ACA also includes several changes aimed at reducing the growth in Medicare spending. For example, the ACA includes reductions in the growth of Medicare payments to hospitals and other providers, and to Medicare Advantage plans. The law also created an Innovation Center within the Centers for Medicare and Medicaid Services (CMS) tasked with developing and testing new health care payment and delivery models and established the Medicare Shared Savings Program, a permanent accountable care organization (ACO) program in traditional Medicare that offers financial incentives to providers for meeting or exceeding savings targets and quality goals.

Finally, the ACA includes many other provisions that do not relate directly to health coverage. For example, the ACA authorizes the Food and Drug Administration to approve generic versions of biologic drugs. There are also provisions that aim to reduce waste and fraud, expand the health care workforce, increase data collection and reporting on health disparities, and improve public health preparedness.

When passed, the ACA was designed to be budget neutral, with health insurance subsidies and expansions of public programs financed through a variety of taxes and fees on individuals, employers, insurers, and certain businesses in the health sector, as well as savings from the Medicare program. As discussed in more detail below, some of these taxes or fees have since been repealed or reduced to zero dollars, including the individual mandate penalty, the medical device tax, and the so-called “Cadillac Tax,” which would have imposed an excise tax on high-cost employer health plans. Additionally, at times, a tax on health insurance carriers has been temporarily put on hold.

Health Insurance Marketplaces (also known as exchanges) are organizations set up to create more organized and competitive markets for individuals and families buying their own health insurance. The Marketplaces offer a choice of different health plans, certify plans that participate, and provide information and in-person assistance to help consumers understand their options and apply for coverage. Premium and cost-sharing subsidies based on income are available through the Marketplace to make coverage more affordable for individuals and families. People with very low incomes can also find out if they are eligible for coverage through Medicaid and CHIP while shopping on the Marketplace.

Some small businesses can buy coverage for their employees through separate exchanges called Small Business Health Options Program (SHOP) Marketplace plans, but this chapter focuses primarily on the Marketplaces for individuals and families.

There is a health insurance Marketplace in every state for individuals and families and for small businesses. Some enrollment websites are operated by the state government or quasi-governmental bodies at the state level and have a special state name (such as Covered California or The Maryland Health Benefit Exchange). In 29 states where the federal government runs the enrollment website, it is called HealthCare.gov. As of early 2024, three state-based Marketplaces (Arkansas, Georgia, and Oregon) use the federal platform.

The Marketplaces exist alongside other coverage that is also sold to individuals or small businesses. The Marketplaces for individuals and families are part of what is called the “individual insurance market,” which also includes ACA-compliant and non-compliant insurance sold off the Marketplace (also called off-exchange coverage). Similarly, the “small group insurance market” includes the SHOP Marketplace plans as well as other ACA-compliant and non-compliant coverage sold to small businesses.

While many Americans are allowed to purchase unsubsidized coverage on the ACA Marketplaces, these markets primarily exist to fill a gap in coverage options for people who cannot get insurance through work or public programs. Some people who sign up for Marketplace coverage are unemployed or between jobs, while others are students, self-employed or work at businesses that do not offer coverage (e.g. very small companies) or offer coverage that is deemed unaffordable.

To receive the premium tax credit for coverage starting in 2024, a Marketplace enrollee must meet the following criteria:

• Have a household income at least equal to the Federal Poverty Level (FPL), which for the 2024 benefit year will be determined based on 2023 poverty guidelines.
• Not have access to affordable coverage through an employer (including a family member’s employer).
• Not be eligible for coverage through Medicare, Medicaid, or the Children’s Health Insurance Program (CHIP).
• Have U.S. citizenship or proof of legal residency (lawfully present immigrants whose household income is below 100 percent FPL can also be eligible for tax subsidies through the Marketplace if they meet all other eligibility requirements).
• If married, must file taxes jointly.

Employer coverage: If a person’s employer offers health coverage but that coverage is deemed unaffordable or of insufficient value, the employee and/or their family may be able to receive subsidies to buy Marketplace coverage. Employer coverage is considered affordable if the required premium contribution is no more than 8.39 percent of household income in 2024. The Marketplace will look at both the required employee contribution for self-only and (if applicable) for family coverage. If the required employee contribution for self-only coverage is affordable, but the required employee contribution for family coverage is more than 8.39 percent of household income, the dependents can purchase subsidized exchange coverage while the employee stays on employer coverage.

The employer’s coverage must also meet a minimum value standard that requires the plan to provide substantial coverage for physician services and for inpatient hospital care with an actuarial value of at least 60 percent (meaning the plan pays for an average of at least 60 percent of all enrollees’ combined health spending, similar to a bronze plan). The plan must also have an annual OOP limit on cost sharing of no more than $9,450 for self-only coverage and $18,900 for family coverage in 2024.

People offered employer-sponsored coverage that fails to meet either the affordability threshold or minimum value requirements can qualify for Marketplace subsidies if they meet the other criteria listed above.

Eligibility for Medicaid: In states that have expanded Medicaid under the ACA, adults with income up to 138 percent FPL are generally eligible for Medicaid and, therefore, are ineligible for Marketplace subsidies. In the states that have not adopted the Medicaid expansion, adults with income as low as 100 percent of poverty can qualify for Marketplace subsidies, but those with lower incomes are not eligible for tax credits and generally not eligible for Medicaid unless they meet other state eligibility criteria.

An exception to the rule restricting tax credit eligibility for adults with income below the poverty level is made for certain lawfully present immigrants. Other federal rules restrict Medicaid eligibility for lawfully present immigrants, other than pregnant women, refugees, and asylees, until they have resided in the U.S. for at least five years. Immigrants who would otherwise be eligible for Medicaid but have not yet completed their five-year waiting period may instead qualify for tax credits through the Marketplace. If an individual in this circumstance has an income below 100 percent of poverty, for the purposes of tax credit eligibility, their income will be treated as though it is equal to the poverty level. Immigrants who are not lawfully present are generally ineligible to enroll in health insurance through the Marketplace, receive tax credits through the Marketplaces, or enroll in non-emergency Medicaid and CHIP.

The ACA requires all qualified health benefits plans to cover essential health benefits, including those offered through the Marketplaces and those offered in the individual and small group markets off-exchange. Grandfathered individual and employer-sponsored plans (which existed before the ACA was passed) and non-compliant plans (which include short-term plans) do not have to cover essential health benefits.

The law specifies that the essential health benefits package must include at least 10 categories of items and services: ambulatory patient services; emergency services; hospitalization; pregnancy, maternity, and newborn care; mental health and substance use disorder services, including behavioral health treatment; prescription drugs; rehabilitative and habilitative services and devices; laboratory services; preventive and wellness services and chronic disease management; and pediatric services, including oral and vision care. It also requires that the scope of benefits be equal to that of a “typical employer plan.”

These categories are broad and subject to interpretation. For example, there could be limits on the number of physical therapy services an enrollee receives in a year. For more specific guidance on how to interpret these requirements, the federal government allows states to select a “benchmark” health plan (often one that was already offered to small businesses) as a standard.

Essential health benefits are a minimum standard. Plans can offer additional health benefits, like vision, dental, and medical management programs (for example, for weight loss). The ACA prohibits abortion coverage from being required as part of the essential health benefits package. The premium subsidy does not cover non-essential health benefits, meaning that people enrolling in a plan with non-essential benefits may have to pay a portion of the premium for these additional benefits.

Although plans must cover essential health benefits, they are allowed to apply cost sharing (deductibles, copayments, and coinsurance). This means enrollees may still face some out-of-pocket costs when receiving these services. However, preventive health services are required to be covered without cost sharing. Examples of preventive health services include vaccinations, cancer screenings, and birth control.

There are two types of financial assistance available to Marketplace enrollees. The first type, called the premium tax credit (or premium subsidy), reduces enrollees’ monthly payments for insurance coverage. The second type of financial assistance, the cost-sharing reduction (CSR), reduces enrollees’ deductibles and other out-of-pocket costs when they go to the doctor or have a hospital stay. To receive either type of financial assistance, qualifying individuals and families must enroll in a plan offered through a health insurance Marketplace. In addition to the federal subsidies discussed here, some states that operate their own exchange markets offer additional state-funded subsidies that further lower premium payments and/or deductibles or other forms of cost-sharing.

Premium Subsidies

Premium tax credits can be applied to Marketplace plans in any of four “metal” levels of coverage: bronze, silver, gold, and platinum. Bronze plans tend to have the lowest premiums but have the highest deductibles and other cost sharing, leaving the enrollee to pay more out-of-pocket when they receive covered health care services, while platinum plans have the highest premiums but very low out-of-pocket costs. There are also catastrophic plans, usually only available to younger enrollees, but the subsidy cannot be used to purchase one of these plans.

The premium tax credit works by limiting the amount an individual must contribute toward the premium for the “benchmark” plan – or the second-lowest cost silver plan available to the individual in their Marketplace. This “required individual contribution” is set on a sliding income scale. In 2024, for individuals with income up to 150 percent FPL, the required contribution is zero, while at an income of 400 percent FPL or above, the required contribution is 8.5 percent of household income.

These contribution amounts were set by the American Rescue Plan Act (ARPA) in 2021 and temporarily extended by the Inflation Reduction Act (IRA) through the end of 2025. Prior to the ARPA, the required contribution percentages ranged from about two percent of household income for people with poverty level income to nearly 10 percent for people with income from 300 to 400 percent of poverty. Before the ARPA was passed, people with incomes above 400 percent of poverty were not eligible for premium tax credits. If Congress does not act to extend the IRA subsidies before the end of 2025, they will expire, and the original ACA premium caps will return.

The amount of tax credit is calculated by subtracting the individual’s required contribution from the actual cost of the “benchmark” plan. So, for example, if the benchmark plan costs $6,000 annually, the required contribution for someone with an income of 150 percent FPL is zero, resulting in a premium tax credit of $6,000. If that same person’s income equals 250 percent FPL (or $36,450 in 2024), the individual contribution is four percent of $36,450, or $1,458, resulting in a premium tax credit of $4,542.

The premium tax credit can then be applied toward any other plan sold through the Marketplace (except catastrophic coverage). The amount of the tax credit remains the same, so a person who chooses to purchase a plan that is more expensive than the benchmark plan will have to pay the difference in cost. If a person chooses a less expensive plan, such as the lowest-cost silver plan or a bronze plan, the tax credit will cover a greater share of that plan’s premium and possibly even the entire cost of the premium. When the tax credit exceeds the cost of a plan, it lowers the premium to zero and any remaining tax credit amount is unused.

As mentioned above, the premium tax credit will not apply for certain components of a Marketplace plan premium. First, the tax credit cannot be applied to the portion of a person’s premium attributable to covered benefits that are not essential health benefits (EHB). For example, a plan may offer adult dental benefits, which are not included in the definition of EHB. In that case, the person would have to pay the portion of the premium attributable to adult dental benefits without financial assistance. In addition, the ACA requires that premium tax credits may not be applied to the portion of premium attributable to “non-Hyde” abortion benefits. Marketplace plans that cover abortion are required to charge a separate minimum $1 monthly premium to cover the cost of this benefit; this means a consumer who is otherwise eligible for a fully subsidized, zero-premium policy would still need to pay $1 per month for a policy that covers abortion benefits. Finally, if the person smokes cigarettes and is charged a higher premium for smoking, the premium tax credit is not applied to the portion of the premium that is the tobacco surcharge.

Cost-Sharing Reductions

The second form of financial assistance available to Marketplace enrollees is a cost-sharing reduction. Cost-sharing reductions lower enrollees’ out-of-pocket cost due to deductibles, copayments, and coinsurance when they use covered health care services. People who are eligible to receive a premium tax credit and have household incomes from 100 to 250 percent of poverty are eligible for cost-sharing reductions.

Unlike the premium tax credit (which can be applied toward any metal level of coverage), cost-sharing reductions (CSR) are only offered through silver plans. For eligible individuals, cost-sharing reductions are applied to a silver plan, essentially making deductibles and other cost sharing under that plan more similar to that under a gold or platinum plan. Individuals with income between 100 and 250 percent FPL can continue to apply their premium tax credit to any metal level plan, but they can only receive the cost-sharing subsidies if they pick a silver-level plan.

Cost-sharing reductions are determined on a sliding scale based on income. The most generous cost-sharing reductions are available for people with income between 100 and 150 percent FPL. For these enrollees, silver plans that otherwise typically have higher cost sharing are modified to be more similar to a platinum plan by substantially reducing the silver plan deductibles, copays, and other cost sharing.  For example, in 2024, the average annual deductible under a silver plan with no cost-sharing reduction is over $5,000, while the average annual deductible under a platinum plan was $97. Silver plans with the most generous level of cost-sharing reductions are sometimes called CSR 94 silver plans; these plans have 94 percent actuarial value (which represents the average share of health spending paid by the health plan) compared to 70 percent actuarial value for a silver plan with no cost-sharing reductions.

Somewhat less generous cost-sharing reductions are available for people with income greater than 150 and up to 200 percent FPL. These reduce cost sharing under silver plans to 87 percent actuarial value (CSR 87 plans). In 2024, the average annual deductible under a CSR 87 silver plan was about $700.

For people with income greater than 200 and up to 250 percent FPL, cost-sharing reductions are available to modestly reduce deductibles and copays to 73 percent actuarial value (sometimes called CSR 73 plans). In 2024, the average annual deductible under a CSR 73 silver plan was about $4,500.

Insurers have flexibility in how they set deductibles and copays to achieve the actuarial value under Marketplace plans, including CSR plans, so actual deductibles may vary from these averages.

The ACA also requires maximum annual out-of-pocket spending limits on cost sharing under Marketplace plans, with reduced limits for CSR plans. In 2024, the maximum OOP limit is $9,450 for an individual and $18,900 for a family for all QHPs. Lower maximum OOP limits are permitted under cost-sharing reduction plans.

Cost-sharing reductions work differently for Native American and Alaska Native members of federally recognized tribes. For these individuals, cost-sharing reductions are available at higher incomes and can be applied to metal levels other than silver plans.

Since it was first signed into law, the ACA has undergone many changes through regulation, legislation, and legal challenges. Some provisions never got off the ground, and others were repealed, while more recent changes have expanded and enhanced other provisions. This section summarizes some of the most significant changes to the law.

Medicaid Expansion: The ACA originally expanded Medicaid to all non-Medicare eligible individuals under age 65 with incomes up to 138% of the poverty level. A Supreme Court ruling on the constitutionality of the ACA upheld the Medicaid expansion, but limited the ability of HHS to enforce it, thereby making the decision to expand Medicaid effectively optional for states. As of the beginning of 2024, 40 states and the District of Columbia had expanded Medicaid. Additionally, while not taking up Medicaid expansion under the ACA, Wisconsin did increase Medicaid eligibility to 100% of the poverty level, which is where ACA Marketplace subsidy eligibility begins. In the remaining states that have not expanded Medicaid, an estimated 1.5 million people fall into the so-called Medicaid coverage gap, meaning their incomes are too high to qualify for Medicaid but too low to qualify for ACA Marketplace subsidies. The federal government covers 90% of the cost of Medicaid expansion.

Individual Mandate: The ACA also originally included an “individual mandate” or requirement for most people to maintain health insurance. In health insurance systems designed to protect people with pre-existing conditions and guarantee availability of coverage regardless of health status, countervailing measures are also needed to ensure people do not wait until they are sick to sign up for coverage, as doing so would drive up premiums. The ACA included a variety of these countervailing measures, with both “carrots” (e.g., premium tax credits and cost-sharing reductions) and “sticks” (e.g., the individual mandate penalty and limited enrollment opportunities) to encourage healthy as well as sick people to enroll in health insurance coverage.

American citizens and U.S. residents without qualifying health coverage had to pay a tax penalty of the greater of $695 per year up to a maximum of three times that amount ($2,085) per family or 2.5% of household income. The penalty was set to increase annually by the cost-of-living adjustment. Exemptions were granted for financial hardship, religious objections, American Indians, those without coverage for less than three months, undocumented immigrants, incarcerated individuals, those for whom the lowest cost plan option exceeds 8% of an individual’s income, and those with incomes below the tax filing threshold.

Despite the popularity of the ACA’s protections for people with pre-existing conditions, the individual mandate was politically controversial and consistently viewed negatively by a substantial share of the public. In early 2017, under President Trump, the Internal Revenue Service (IRS) stopped enforcing the individual mandate penalty. After several attempts to repeal and replace the ACA stalled out in the summer of 2017, Congress reduced the individual mandate penalty to $0, effective in 2019, as part of tax reform legislation passed in December 2017.

Cost-Sharing Reduction Payments: The ACA originally included two types of payments to insurers participating in the ACA Marketplace. First, insurers received advanced payments of the premium tax credit to subsidize monthly premiums for people buying their own coverage on the Marketplace. Second, insurers were required to reduce cost sharing (i.e., deductibles, copayments, and/or coinsurance) for low-income enrollees and the federal government was required to reimburse insurers for these cost-sharing reductions (CSRs). However, the funds for the payment of cost-sharing reductions were never appropriated. The Trump administration ended federal CSR payments to insurers weeks before ACA Marketplace Open Enrollment for 2018 coverage began. In response to this, most states allowed insurers to compensate for the lack of government payments by raising premiums. At the time, the Congressional Budget Office (CBO) estimated termination of CSR payments to insurers would increase the federal deficit by $194 billion over 10 years, because of these higher premiums and corresponding increased premium tax credit subsidies. Although the CSR payments have ceased, cost-sharing reduction plans continue to be available to low-income Marketplace enrollees.

Enhanced and Expanded ACA Marketplace Subsidies: Another controversial aspect of the ACA was the so-called “subsidy cliff,” where people with incomes over 400% of the federal poverty level were ineligible for financial assistance on the Marketplace and, therefore, would have to pay a large share of their household income for unsubsidized health coverage. As a result, many middle-income people were being priced out of ACA coverage. The March 2021 COVID-19 relief legislation, the American Rescue Plan Act (ARPA), extended eligibility for ACA health insurance subsidies to people with incomes over 400% of poverty buying their health coverage on the Marketplace. The ARPA also increased the amount of financial assistance for people with lower incomes who were already eligible under the ACA, making many low-income people newly eligible for free or nearly free coverage. Both provisions were temporary, lasting for two years, but the Inflation Reduction Act extends those subsidies through the end of 2025.

Family Glitch: Financial assistance to buy health insurance on the Affordable Care Act (ACA) Marketplaces is primarily available for people who cannot get coverage through a public program or their employer. Some exceptions are made, however, including for people whose employer coverage offer is deemed unaffordable or of insufficient value. For example, people can qualify for ACA Marketplace subsidies if their employer requires them to spend more than about 8-9% (indexed each year) of their household income on the company’s health plan premium. For many years, this affordability threshold was based on the cost of the employee’s self-only coverage, not the premium required to cover any dependents. In other words, an employee whose contribution for self-only coverage was less than the threshold was deemed to have an affordable offer, which means that the employee and their family members were ineligible for financial assistance on the Marketplace, even if the cost of adding dependents to the employer-sponsored plan would far exceed the approximately 8-9% of the family’s income. This definition of “affordable” employer coverage has come to be known as the “family glitch,” which affected an estimated 5.1 million people. Under a Biden administration federal regulation, the worker’s required premium contributions for self-only coverage and for family coverage will be compared to the affordability threshold of approximately 8-9% of household income. If the cost of self-only coverage is affordable, but the cost for family coverage is not, the worker will stay on employer coverage while their family members can apply for subsidized exchange coverage.

Public Opinion: Americans’ views of the Affordable Care Act have evolved over time. From the time the ACA passed, to when the Marketplaces first opened in 2014, and through the months leading up to President Trump’s election in 2016, public opinion of the ACA was strongly divided and often leaned more negative than positive. Many individual provisions of the ACA, such as protections for people with preexisting conditions, were popular, but the individual mandate was particularly unpopular.

News coverage during the ACA Marketplaces’ early years often centered on the rocky rollout, from the early Healthcare.gov website glitches to skyrocketing premiums in subsequent years. Coverage in later years focused on how unprofitable insurers exited the market, leaving people in some counties at risk of having no Marketplace insurer—and thus, no Marketplace through which to access health insurance subsidies.

In 2017, then President Trump and Republicans in Congress attempted to repeal or fundamentally alter the ACA. As proposals to replace the ACA became more concrete, though, public support for the ACA, particularly among Democrats and Independents, began to grow. Ultimately, the only key aspect of the law that was removed was the penalty for not purchasing health insurance—now lowered to $0 as part of a tax reform package.

Following repeal efforts and the removal of the individual mandate penalty, as well as a stabilization of the ACA Marketplaces, public support for the law has continued to grow and is now solidly more positive than negative. Although this support remains divided by party lines, several Republican-led states have adopted the ACA’s Medicaid expansion through popular votes.

After volatile initial years, the ACA Marketplaces have become more stable—a pattern which can be seen across a variety of measures, including enrollment, premiums and insurer participation. 

Enrollment

ACA Marketplace enrollment has more than tripled since its launch in 2014. The number of people who enrolled and effectuated their Marketplace coverage in early 2024 reached 20.8 million, surpassing prior record-setting years in 2021, 2022, and 2023. The recent enrollment growth was likely primarily driven by the enhanced subsidies in the American Rescue Plan Act and the Inflation Reduction Act, as well as the Biden administration’s decision to direct more resources toward marketing, outreach, and enrollment assistance, reversing substantial reductions in funding by the Trump administration.

The ARPA’s subsidies didn’t simply bring people from off-Marketplace plans to the Marketplace; they also helped increase overall individual market enrollment. Enrollment grew to 18.2 million in early 2023, which is an increase of about 29% from early 2020.

With passage of enhanced subsidies in the American Rescue Plan Act (ARPA), combined with boosted outreach and an extended enrollment period, 2021 marked the first year since 2015 when individual market enrollment increased relative to the year prior. Individual market enrollment grew about 5% from 14.1 million in the first quarter of 2020 to 14.9 million in the first quarter of 2021.

In the early years of the rollout of the ACA Marketplaces, on-exchange enrollment was comparable to off-exchange enrollment, meaning that the Marketplaces represented about half of overall individual market enrollment. Some off-exchange enrollment was represented by people in ACA-compliant coverage (similar to that offered on-exchange, but without subsidies), while other individual market enrollees were signed up for non-compliant coverage, like “grandmothered” or short-term plans.

Non-compliant short-term plans often do not include certain benefits or coverage for pre-existing conditions and can impose a dollar limit on insurance coverage. For example, many short-term plans do not cover maternity care, prescription drugs, or mental health or substance use treatment, and most impose a dollar limit on covered services or drugs. The Biden administration recently finalized a rule that reverses the Trump administration’s expansion of short-term plans; this may further reduce enrollment in non-compliant plans. 

The share of individual market enrollment in ACA-compliant plans has increased to 93% in mid-2022 compared to 71% in mid-2015. At the time of publication, finalized data are only available through mid-2022, and non-compliant enrollment may have fallen even further in 2023.

Premiums

ACA Marketplace premiums have risen substantially over time. When insurers entered the ACA Marketplaces in 2014, most were operating with virtually no experience participating in an individual market like this (e.g., with subsidies, preexisting condition protections, an individual mandate). Insurers also had to submit premiums almost a year in advance for review and approval by state regulators. Even 2015 premiums were submitted in early 2014, meaning insurers did not have much experience in the market on which to base their premium and claim projections. Eventually, though, it became clear that they were underpriced and unprofitable, so in 2016, many insurers began to raise premiums. By 2017, the temporary reinsurance and risk corridors programs had phased out, leading to another market correction. In 2018, with the discontinuation of cost-sharing reduction payments, insurers raised premiums yet again, though most insurers concentrated these premium increases on silver plans (a practice known as “silver loading”). More recently, though, as the markets have stabilized and as the pandemic led to a temporary reduction in health care utilization, premiums have at times fallen or at least grown at a slower pace. Heading into 2024, ACA Marketplace benchmark premiums rose by about 5% on average, driven primarily by inflation.

Deductibles and other cost sharing

Deductibles, particularly for plans without cost-sharing reductions, have also risen since the ACA Marketplaces were first launched in 2014. Bronze plans, which typically have the highest deductibles among ACA Marketplace plans, have an average deductible of $7,258 in 2024, compared to $5,113 in 2014. However, as discussed above, many ACA Marketplace enrollees are low income and therefore qualify for cost-sharing reductions if they purchase a silver plan. For the most generous cost-sharing reduction plans, which are available to people with incomes just above the poverty level, the average deductible is $90 in 2024, compared to $183 in 2014.  

Insurer participation

Insurer participation in 2024 is more robust than in recent years, essentially tied for a record high level of participation set in 2015.

Insurer participation on the ACA Marketplaces fell dramatically in 2017 with the exit of UnitedHealthcare from most states. In 2018, with President Trump’s announcement that cost-sharing reduction payments would cease and the corresponding attempts to repeal the ACA in Congress, many more insurers exited or scaled back their participation. Though all counties in the country continued to have at least one ACA Marketplace insurer, there had initially been concern that there could have been counties left without any insurer, thus leaving residents in those counties without access to ACA subsidies.

However, in subsequent years, with premium increases and changes in strategies, it became apparent that the ACA Marketplaces could be quite profitable and many insurers entered or expanded their footprints.

The ACA has faced both support and opposition over time, and its fate has been subject to numerous political and legal debates, including efforts to repeal and replace the law and to overturn it in whole or in part in several court cases. Future changes in presidential administrations and shifts in the composition of Congress will likely continue to impact the implementation and stability of the ACA.

Key issues to watch include:

Inflation Reduction Act Subsidies: Currently, the enhanced subsidies in the ACA Marketplaces are set to expire at the end of 2025. If these subsidies are allowed to expire, people purchasing subsidized coverage will face significant increases in their monthly premium payments and some may become priced out of the market.

Medicaid Unwinding: During the pandemic, state Medicaid programs suspended annual renewal requirements for Medicaid and kept everyone continuously enrolled. Now, states are resuming renewal requirements and will end Medicaid coverage if people are no longer eligible or if they do not complete renewal forms (sometimes called “procedural reasons”). Millions of adults and children have been disenrolled from Medicaid and CHIP, mostly due to procedural reasons, and millions more will likely be disenrolled in the coming months. Some are eligible for Marketplace subsidies, further boosting enrollment, though there may continue to be challenges in ensuring people losing Medicaid are aware of their options for coverage through the Marketplaces. With the unwinding of Medicaid continuous enrollment, the uninsured rate may start to rise. It is likely to remain below pre-ACA levels, but some of the gains in coverage could be lost.

State Actions: In recent years, some states have moved off the federal platform (Healthcare.gov) to implement their own enrollment websites. Additionally, more states have expanded Medicaid. Some states have sought 1332 waivers under the ACA to implement reinsurance programs, expand coverage to undocumented residents, and create public options.

Consumer Protections: The ACA includes various consumer protections that continue to evolve through the regulatory process. For example, recent proposed and finalized rulemaking has focused on improving network adequacy, simplifying the shopping process, and reexamining essential health benefits.

Health Costs and Affordability: Though the ACA has made insurance coverage more accessible and affordable for millions of people, health costs in the United States continue to be high and many people with insurance nonetheless face cost-related barriers to care.

• KFF Subsidy Calculator
• Subsidy Explainer
• Health Reform FAQs
• Inflation Reduction Act Subsidies  
• What to Watch on ACA Marketplaces in 2024
• State Health Facts – ACA state data
• Individual Market Enrollment  
• Deductibles in ACA Marketplaces

Ortaliza, J. & Cox, C., The Affordable Care Act 101. In Altman, Drew (Editor), Health Policy 101, (KFF, July 2024) https://www.kff.org/health-policy-101-the-affordable-care-act/ (date accessed).

Employer-sponsored health insurance (ESI) is the largest source of health coverage for non-elderly U.S. residents. Unlike many other nations, the U.S. relies on voluntary, private health insurance as the primary source of coverage for residents who are not elderly, poor or disabled. Providing health insurance through workplaces is an efficient way of offering coverage options to working families, and the tax benefits of employer-based coverage further enhance its attractiveness. Yet, ESI often results in uneven coverage, especially for those with low wages or those working at smaller firms. Overall, 60.4% of people under age 65, or about 164.7 million people, had employment-sponsored health insurance in 2023. The level of coverage varies significantly with income and other factors, even among working families.

There are several ways people get private health insurance. One is by purchasing coverage directly from an insurer, often with the help of an insurance agent or through an online platform such as Healthcare.gov. Income-based premium assistance is available under the Affordable Care Act (ACA). This is called individual or non-group health insurance. The second is coverage under a policy or plan offered by a sponsoring group, such as an employer, union, or trade association. This is called group health insurance. When an individual is sponsored specifically by an employer (or sometimes jointly by one or more employers and a union, or by a group of employers), it is often referred to as employer-sponsored health insurance or ESI.

The word “insurance” is something of a misnomer here. An employer providing health benefits for workers and their families (“plan enrollees”) can fund them in one of two ways. Employers may purchase a health insurance policy from a state-licensed health insurer, which is referred to as an insured plan. Alternatively, the employer can pay for health care for the plan enrollees directly with its own assets, referred to as a self-funded plan. Employers with self-funded plans often protect themselves from unexpected high claim amounts or volume by purchasing a type of insurance referred to as stop-loss coverage. As discussed below, most ESI plan enrollees are covered by large employers, and most large employers self-fund their health benefit plans.

Another confusing set of phrases used in conjunction with health insurance, including ESI, is “health plan” or just “plan.” The terms can refer to an entity offering coverage (e.g. Aetna) or  a particular coverage option offered by an insurer or employer (e.g. the PPO plan option). However, the terms “employee benefit plan” and “plan” have specific meanings in federal law and invoke several legal obligations for employers when they offer certain benefits to their workers and their family members. Under the Employee Retirement Income Security Act, or ERISA, an employee benefit plan, or plan, is created when a private employer creates a plan, fund, or program to provide certain benefits, including health benefits, to employees. ERISA creates a structure of disclosure, enforcement and fair dealing regarding the promises made by employers to enrollees in employee benefit plans. However, ERISA does not apply to the health benefit plans created by public plans or churches, although the word plan is often still used to describe benefits offered in these settings.

ESI plans can be differentiated across several dimensions.

Comprehensive or limited benefits

Employers offer different types of health benefit options to employees. These include comprehensive benefit plans, which cover a large share of the cost of hospital, physician, and prescription costs that a family might incur during a year; service-specific benefits, such as dental or vision care plans; and supplemental benefit plans, which may provide a limited additional benefit to enrollees if certain circumstances occur (e.g. $100 per day if hospitalized). The discussion here will be limited to comprehensive benefit plans.

Open or closed provider networks

Health plans contract with hospitals, physicians, pharmacies, and other types of health providers to provide plan enrollees with access to medical care at a predetermined cost. Plan enrollees receiving services from one of these providers know that their financial liability is limited by their deductible and other cost-sharing amounts specified in their benefit plan. A closed-network plan is one where, absent special circumstances, an enrollee is only covered if they receive care from a provider in their plan’s network of contracted providers. In an open-network plan, an enrollee still has some coverage if they receive care from a provider not in the plan network, although they will likely face higher cost sharing under their benefit plan, and the provider may ask them to pay an additional amount (known as balance billing). Health maintenance organization (HMO) and exclusive provider organization (EPO) plans are two types of closed network plans. Preferred provider organization (PPO) and point of service (POS) plans are two types of open network plans.

Small and large group markets

Federal and state laws divide ESI into the small group and the large group market based on the number of full-time equivalent employees (FTEs) working for the employer sponsoring the plan. Federal regulation states that employers with fewer than 50 FTEs are often in the small group market and employers with at least 50 FTEs are in the large group market. However, states have the option to raise the small group market limit to fewer than 100 FTEs. The regulatory requirements for the small and large group markets differ somewhat. Generally, the small group insured market is subject to more extensive rules about benefits and ratings. Large employers are potentially subject to financial penalty under the ACA if they do not offer health insurance coverage meeting certain requirements to their full-time employees.

The drafters of the ACA intended to provide coverage options to those without access to employer-sponsored coverage without encouraging employers to drop coverage. To achieve this balance, the ACA requires that employers with at least 50 FTEs offer health benefits which meet minimum standards for value and affordability or pay a penalty. The so-called ‘employer mandate’ constitutes two separate penalties.

First, employers are taxed if they do not offer minimum essential coverage to 95% of their full-time employees and their dependent children. This generally requires that employers offer major-medical coverage and not a limited benefit plan. Employers face this penalty when at least one of their employees receives an advance premium tax credit (APTC) to purchase coverage on the health insurance exchange markets or Marketplaces. In 2024, this penalty stipulates that employers will be assessed a tax of $2,970 for each full-time employee after their first 30 employees.

Secondly, employers are penalized if the coverage they offer is not affordable or does not provide minimum value. Plans are considered to meet the minimum value standard if they cover 60% of the health spending of a typical population. In 2023, coverage was deemed to be affordable if the employee premium contribution is less than or equal to 9.12% of their household income. Employers may be charged $3,750 for each employee enrolling on subsidized Marketplace coverage.   

Defining what constitutes ‘affordable’ has been the focus of considerable attention in recent years. The Obama Administration initially issued rules that workers and their dependents would be considered to have an affordable offer if self-only coverage met the affordability test. With many employers requiring much larger premium contributions to enroll dependents, this meant that as many as 5.1 million people were in households where they had to pay a larger share of their income to enroll in the plan offered by their employers without being eligible for premium tax credits. Recent rules have addressed the so-called “family glitch” by considering the cost of family coverage when assessing affordability. While most large employers offer health benefits, many may encourage spouses and other dependents to enroll in different plans if possible. For more information on eligibility for premium credits, see the Affordable Care Act chapter.

ESI is by far the most common source of private health insurance. There are two primary reasons for this. The first is that providing health insurance through the workplace is efficient, with advantages relating both to risk management and to the costs of administration. The second is that contributions towards premiums by employers and (in most cases) by employees are not subject to income or payroll taxes, providing a substantial federal and state subsidy towards the costs of ESI.

ESI Efficiencies

When people have choices about whether to buy insurance and the amount of coverage to buy, it is natural that people with the highest need for coverage (e.g. people in poorer health) will be more likely to purchase and be more willing to pay higher prices. This is called adverse selection. If insurers do not address these tendencies, their risk pools will become dominated by a relatively small share of people with the highest needs, and premiums will increase to levels that only make sense for those with very high expected costs.

There are several ways insurers seek to manage the risk profile of potential enrollees to avoid adverse selection. One is by examining the health profile of each applicant, which typically includes the applicant’s health history and pre-existing conditions. This strategy is reasonably effective, but an expensive and time-consuming process. A much lower-cost approach is to provide coverage to groups of people who are grouped together for reasons other than their health or their need for health insurance. Providing coverage through the workplace is a common way of doing this. Mostly, people choose a job because of the work, not because they need health insurance. Therefore, providing coverage through workplaces provides insurers with a fairly normal mix of healthy and less healthy enrollees if certain conditions are met. These conditions include enrolling a large share of the eligible workers in coverage (typically achieved by the employer paying a large share of the cost) and limiting the range of coverage options (to avoid adverse selection among plan types). Further, as the number of employees grows, the ability to predict future costs based on prior experience also increases, reducing the uncertainty in setting premiums for the group. As uncertainty decreases, insurers can reduce what they charge for insuring the group. Overall, the same scenario generally applies to situations where employers choose to offer a self-funded plan. Therefore, these advantages occur regardless of whether an insurer or an employer is taking on the risk.

In addition to the risk management advantages, ESI has many administrative advantages. Providing coverage through a workplace adds many employees to a risk pool through a single transaction, with no need to examine their health in most cases. Employers also provide and collect enrollment information to workers and collect the employee share of premiums, dramatically reducing the number of transactions and reducing the amount of unpaid premiums that typically occur when individuals purchase insurance directly from insurers.

Tax Advantages

Federal and state tax systems provide significant tax preferences for ESI. Generally, wages and other things of value employers provide as compensation to their workers are subject to federal and state taxes. The federal government taxes wages and other forms of income through a series of marginal rates that vary with income and the marital and filing status of the taxpayer. For example, the lowest marginal rate in 2022 for a single taxpayer was 10% for income below $10,275 and the highest rate was 37% for income above $539,500. Additionally, wages are subject to federal payroll taxes to support the Social Security and Medicare programs; employers and employees are each assessed 6.2% of wages up to a maximum wage for Social Security and 1.45% of wages with no wage limit for Medicare. Wages are also subject to state income and payroll taxes for unemployment, which vary considerably.

Unlike wages, ESI provided by employers as part of their compensation to employees is not considered income under the federal income tax code, nor are they considered wages subject to federal payroll taxes (See 26 USC sections 105 and 106). Federal law also permits employers to establish programs that exclude employee contributions towards ESI from these taxes. These exclusions lower the cost of health insurance for employees. For example, just considering the federal tax advantages, if an employee earns annual wages of $100,000, an employer can provide the employee with a $20,000 family policy for an additional $20,000 in compensation. However, if ESI were subject to federal taxes, that same employee would need to earn an additional $27,460 in wages to be able to buy a $20,000 family policy with after-tax dollars, assuming a 22% marginal federal income tax rate and a combined 15.3% payroll tax for Social Security and Medicare. Looked at another way, for this employee, for every dollar that the employer raises the employee’s compensation, the employee can get a dollar of health benefits or just under 63 cents in wages after taxes. State tax laws, which follow federal definitions of income and wages in this situation, further lower the cost of ESI for workers, although the impacts are much smaller.

The exclusion of ESI from federal income tax is a long-standing and somewhat controversial part of federal tax policy, first appearing due to a decision by the War Labor Board in 1942, which in turn allowed employers to use fringe benefits to attract workers during the war. In 1954, ESI exclusion was enacted in the tax code. This tax policy, combined with the risk management and administrative advantages of group coverage, contributed to the rapid growth and continued market dominance of commercial hospital and medical insurance during this period. Detractors of the tax exclusion have argued that it encourages workers to over-consume health insurance by demanding health benefits that are richer than what they would want under a tax-neutral approach (e.g. if health benefits were taxed in the same way as wages). Richer benefits, it is argued, contribute to higher health care costs because people with better insurance use more health care than they otherwise would since they are not facing the actual costs of care (sometimes called moral hazard). Another criticism is that the income tax exclusion favors higher-paid employees because they have higher marginal tax rates: the effective income tax benefit for a dollar of ESI is only 10 cents for a worker with very low wages but can be up to 37 cents for those with the highest wages. In contrast, the exclusion of health benefits from payroll taxes has the same dollar benefit for workers at all wage levels (up to the Social Security earning limit), which results in a higher percentage exclusion (share of wages) for those with lower wages. The tax exclusion was estimated to cost the federal government $273 billion (about $840 per person in the US) in income and payroll taxes in 2019.

As of March 2023, 60.4% of the non-elderly, or about 164.7 million people, had ESI. Of these, 84.2 million had ESI from their own job, 73.8 million were covered as a dependent by someone within their household, and 6.7 million were covered as a dependent by someone outside of their household.

A relatively small share of these people also held other coverage at that time: 3.2% were also covered by Medicaid or other public coverage and 0.6% were also covered by non-group coverage.

ESI coverage varies dramatically with income. In March 2023, more than 4 in 5 (84.2%) non-elderly adults with incomes at least 400% of the federal poverty level (FPL) had ESI, compared to 59.0% with incomes between 200% and 399% of the FPL and 23.9% with incomes below 200% of the FPL.

ESI also varies with age, as well as other worker characteristics. Among non-elderly people in March of 2023, people in younger age groups were less likely than those in older age groups to have ESI, and U.S. citizens were much more likely than non-citizens to have ESI. ESI coverage also varied across race and ethnic categories: compared to non-Hispanic White people, Hispanic people and non-Hispanic people who are Black, American Indian or Alaskan Native, or of mixed race were less likely to have ESI.

For people in working families to have ESI, one or more workers must work for an employer that makes coverage available to them. For workers to access ESI, they need to work for an employer that offers ESI and be eligible to enroll in coverage offered at their job. About four in five (80.8%) adult non-elderly workers worked for an employer that offered ESI to at least some employees as of March 2023. Most (93.1%) of these workers were eligible for the ESI offered at their job. Overall, in 2023, about 3 in 4 of all workers were eligible to enroll in the ESI offered at their job.

Both the share of workers working for employers offering coverage and the share of workers eligible for coverage at their jobs varies significantly by income. Among adult non-elderly workers, the share working for an employer offering ESI ranged from 60.6% for workers with incomes under 200% of the FPL to 88.2% for workers with incomes at least 400% of the FPL. Similarly, the share eligible for coverage ranged from 49.5% for workers with incomes under 200% of the FPL to 84.6% for workers with incomes of at least 400% of the FPL.

Working for an offering employer and being eligible for the offered coverage is dependent on a combination of characteristics. As of March of 2023, non-elderly workers working in construction, service, sales, and farm, fishing and forestry-related occupations were less likely to be working for an employer offering ESI and to be eligible for ESI at their jobs. Full-time workers were much more likely to be working for an employer offering ESI and to qualify for coverage at their job. There also was significant variation in offer rates and eligibility within sex, age group, race and ethnicity, and citizenship.

Among non-elderly adult workers eligible for ESI at their jobs in March 2023, 74.4% were ESI policyholders. Of those who did not have ESI from their own job, 14.6% were covered by ESI as a dependent, 4.6% had Medicaid or other public coverage, 2.0% had non-group coverage, 1.1% had some other coverage, and 3.7% were uninsured. A small share of workers with ESI from their job also had other coverage at the same time: 2.4% also had Medicaid or other public coverage and 0.6% also had non-group coverage.

Among firms with three or more workers, just over half (53%) offered health benefits to at least some of their workers in 2023. Firm offer rates differed significantly with firm size. Only 39% of firms with three to nine workers offered health benefits, while virtually all (98%) firms with at least 200 employees did so. While a large majority of firms are small, 83% of firms with three or more employees have fewer than 25 employees, and these firms employ just 16% of workers. Sixty-four percent of workers work for firms with 200 or more employees, where the employer offer rate is almost 100%.

Among firms offering health benefits, 13% of firms with fewer than 200 workers and 26% of larger firms offered health benefits to part-time workers in 2023.

Ninety-five percent of firms offering health benefits offered them to dependents (e.g. spouses and children) of their workers. In 2023, among firms with 200 or more workers offering health benefits, 32% offered benefits to opposite-sex domestic partners and 38% offered benefits to same-sex domestic partners. Many small firms reported that they had not encountered this issue or that they did not know.

Employer health insurance premiums are the total of what employers and employees pay to providers for health coverage through employment. Generally, premiums are the estimated cost of health spending for the covered population, as well as the administrative costs and fees associated with the plan. Therefore, premiums usually increase when a covered population either uses more health services or the prices for health care increase. In 2023, the average total premiums for covered workers were $8,435 for single coverage and $23,968 for family coverage (for a family of four). Employer contributions to an employee’s health insurance premium are a sizeable share of an employee’s overall compensation (6.9% for private industry as of June 2023).

Premiums varied around these averages due to factors such as the age and the health of the workforce, the cost of the providers included in the network, and the generosity of the coverage. In 2023, 10% of covered workers worked at a firm with an average annual premium of at least $31,500 for family coverage. The robustness of plan offerings varies across firms, with some employers offering generous benefits to attract new employees, while others prioritize more affordable plan options. Some employers sponsor limited-benefit plans, which may cover a limited number of services but have lower costs. The average family premium for covered workers at firms with a relatively large share of lower-wage workers (firms where at least 35% of the workers earn $31,000 annually or less) is lower than at firms with fewer lower wage workers. On the other hand, the average premiums for single and family coverage are relatively higher in the Northeast, in private not-for-profit firms, and in firms with a large share of older workers. There is additional discussion of how premiums vary with firm characteristics here.

During the late 1990’s and early 2000’s health insurance premiums grew at a rate considerably faster than inflation and workers’ wages. Recently, the rate of growth has moderated. For example, over the last five years, family premiums have grown 22%, roughly comparable to the rate of inflation (21%) and the change in wages (27%). When faced with higher premium costs employers can adjust their plan offerings, increase cost sharing, drop high-cost providers, or change how benefits are covered in other ways.

Workers contribute to health insurance in two ways. First through a premium contribution, which is typically deducted from an employees’ paycheck. Then, secondly, through cost sharing such as copays, coinsurance, and/or deductibles, which are paid when the employee utilizes services covered by their plan. While all workers enrolled in the plan must pay their premium (or have it paid by the employer), overall cost sharing is higher for workers who use more services.

Workers with health coverage in 2023, on average, were responsible for 17% of the premium for single coverage and 29% of the premium for family coverage. In dollar terms, the average annual contribution for covered workers was $1,401 for single coverage and $6,575 for family coverage.

Over time, the average premium contribution for covered workers has increased. For example, over the last 10 years, the single coverage average contribution has increased 40% and the family coverage average contribution has increased 44%. At the same time, the share of the premium paid for by workers has remained relatively consistent. In 2023, covered workers contributed, on average, 17% of the premium for single coverage and 29% of the premium for family coverage, which was similar to these averages a decade ago. This is because as premiums have increased over time, both employers and employees have faced similar increases on average.

There remains a lot of variation in how much workers are required to contribute to their health plan across firms, particularly within firm size. In 2023, 30% of covered workers at small firms were enrolled in a plan where the employer paid the entire premium for single coverage. This was only the case for 6% of covered workers at large firms. However, 32% of covered workers at small firms were in a plan where they must contribute more than half of the premium for family coverage, compared to 8% of covered workers at large firms. The average family contribution rate for covered workers in firms with fewer than 200 employees was 38%, which is higher than the average contribution rate of 25% for covered workers in larger firms. Small firms often approach the cost of health insurance differently than large firms, sometimes making the same employer contribution regardless of whether the employee enrolls any dependents. Similarly, some large employers encourage spouses and dependents to enroll in other plans, if they have access, through spousal surcharges.

In addition to any required premium contributions, most covered workers must pay a share of the cost of the medical services they use. The most common forms of cost sharing are deductibles (an amount that must be paid before most services are covered by the plan), copayments (fixed dollar amounts), and coinsurance (a percentage of the charge for services). Some plans combine cost sharing forms, such as requiring coinsurance for a service up to a maximum amount or requiring either coinsurance or a copayment for a service, whichever is higher. The type and level of cost sharing may vary with the kind of plan in which the worker is enrolled. Cost sharing may also vary by the type of service, with separate classifications for office visits, hospitalizations, and prescription drugs. Plans often structure their cost sharing to encourage enrollees to reflect on their use, reducing overall utilization.

In recent years, general annual deductibles have grown in prominence in plan design. In 2023, 90% of covered workers were enrolled in a health plan which required that an enrollee met a deductible before the plan covered most services. The average deductible amount as of 2023 for workers with single coverage and a general annual deductible was $1,735. On average, covered workers at smaller firms face higher deductibles than those at large firms ($2,434 vs. $1,478). Generally, a substantial share of workers faced relatively high deductibles. Forty-seven percent of workers at small firms and 25% of workers at large firms had a general annual deductible of $2,000 or more. Over the last five years, the percentage of covered workers with a general annual deductible of $2,000 or more for single coverage has grown from 26% to 31%.

While average deductibles have not grown over the last few years, the growth over the last ten years outpaces increases in premiums, wages, and inflation. The rise in deductible costs has focused attention on consumerism in health care. Some believe that increasing deductibles will place a greater incentive on enrollees to shop for services, therefore reducing total plan spending. Alternatively, deductibles are less common in Health Maintenance Organization (HMO) plans, which use forms of gatekeeping to dissuade utilization. The growth of deductibles has had important consequences for the financial protection that health insurance provides. A multitude of plans require deductibles well in excess of the financial assets of many of their enrollees. As opposed to coinsurances and copays that accumulate throughout the year, deductible spending may require enrollees to finance relatively high expenses all at once.

In addition to looking at the average obligations enrollees face under their health plan, we can look at the actual spending incurred by enrollees in large group plans. In 2021, deductibles accounted for more than 53% of an enrollee’s cost-sharing liability, which is significantly greater than 35% of enrollee liability ten years ago.

The amount of cost sharing large group enrollees face varies, particularly around how many health services a person uses. Individuals who have a hospitalization or a chronic condition which requires ongoing management often incur higher cost sharing over the year. For example, large group enrollees faced an average of $779 in cost sharing, but individuals with a diabetes diagnosis (even without complications) incurred costs of $1,585 in 2017.

While some employer health plans have relatively generous benefits, there remains a concern about affordability, particularly for lower-wage workers who do not have the assets to meet the cost sharing required under their plan, as well as for individuals enrolling in family coverage at smaller firms. Overall, individuals in families with employer coverage spend 2.7% of their income on the worker contribution required to enroll in an employer-sponsored health plan, and another 1.3% of their income on typical out-of-pocket spending on cost sharing. Individuals covered by employer-sponsored plans in households at or below 199% of the FPL contribute over 10% of their income on average towards their premiums and cost sharing.

A key component of plan design is the out-of-pocket maximum, which caps the amount of money an enrollee spends on in-network covered benefits within a year.

The ACA requires that almost all plans have an out-of-pocket (OOP) maximum below a federal determined limit. In 2023, 13% of covered workers in plans with an OOP maximum had an OOP maximum of less than $2,000 for single coverage, while 21% of these workers had an OOP maximum above $6,000.

Today virtually all plans have preferential cost sharing for enrollees to visit providers participating in a preferred provider network. Some plans require enrollees to visit a primary care physician or other gatekeeper before they are referred to a specialist. Plans are often categorized based on these characteristics. 

Preferred Provider Organization (PPO)

PPO plans are the most common plan type. These plans typically have broader provider networks and do not require gatekeeping for specialist services. However, insurers may still use utilization management tools, such as prior authorization, to determine appropriate use and which services will be paid for under the plan. Point-of-service (POS) plans have a provider network like a PPO plan but require gatekeeping for referrals. POS plans are more common in the Northeast and among smaller firms. 

Health Maintenance Organization (HMO)

HMO plans represent 13% of covered workers. HMO enrollment has decreased over the past few decades, compared to nearly 3 in 10 workers who were enrolled in HMOs in the late 1990s. HMOs do not cover non-emergency out-of-network services, and some integrate health care financing and services delivery. Since providers in these plans are not paid on a fee-for-service basis, they are designed to encourage lower utilization to reduce costs. 

High Deductible Health Plan with a Savings Option (HDHP-SO)

HDHP-SO is a relatively new plan type. This plan pairs a high deductible with either a Health Reimbursement Arrangement (HRA) or Health Savings Account (HSA). HSA-qualified plans were first authorized in the Medicare Modernization Act of 2003 and grew precipitously until 2015. HDHP-SO plans now represent almost 3 in 10 covered workers, including almost a quarter enrolled in an HSA-qualified plan. These plans may be an HMO, PPO, or POS, meeting specified federal guidelines. HSA-qualified plans allow both employers and enrollees to contribute to a tax-preferred savings account, which enrollees can use to meet their cost-sharing requirements or save for future health spending. On average, HSA-qualified health plans have higher deductibles than other plan types and lower premiums. The growing enrollment in HSA-qualified plans has led to a growth in general annual deductibles overall. While having a higher deductible in other plan types generally increases enrollee out-of-pocket liability, this is not necessarily true for HDHP-SO plans. Many HDHP-SO enrollees receive an account contribution from their employers, reducing the higher cost sharing in these plans. Sixty-two percent of employers offering single coverage and 59% of employers offering family coverage, as well as an HSA-qualified health plan, contribute to the enrollee’s account. On average, employers contribute $657 to single-coverage HSA-qualified HDHPs, and $1,203 to family-coverage HSA-qualified HDHPs. Some employers may make their account contribution contingent on other factors, such as completing wellness programs. 

Employer plans typically include provider networks, in which enrollees face lower out-of-pocket expenses if they receive care from a designated provider. Firms and health plans structure their networks of providers to ensure access to care and encourage enrollees to use providers who are lower cost or who provide better care. Employees generally prefer broad network plans, and job-based plans are typically broader than those offered on the Marketplaces. Even so, some employers offer a health plan with a relatively small network of providers. These narrow network plans limit the number of providers that can participate to reduce costs and are more restrictive than standard HMO networks. In 2023, 9% percent of firms offering health benefits reported that they offer at least one narrow network plan to their employees. 

More frequently, firms use tiered or high-performance networks in which providers are selected and then grouped within the network based on the quality, cost, and/or efficiency of care they deliver. Enrollees then receive lower cost sharing by choosing a provider in a lower tier. 

Another way plans designate preferred providers is through “Centers of Excellence,” which are facilities or providers that health plans and employers single out as suppliers of exceptionally high-value specialty care for specific conditions. Plans and employers may encourage or require enrollees to use these designated providers to receive coverage for certain types of care. 

As major purchasers of health care, many view employers as having considerable leverage in health care markets based on their network design. This leverage is dampened by a combination of factors, including the prevalence of highly concentrated provider markets, employees’ preferences for broad network plans, and the challenges of building networks capable of delivering timely access.

One specific concern is the availability of mental health providers. In 2023, most firms (91%) reported that they believed their largest plan offered timely access to primary care providers. However, only 67% of firms believed there were enough mental health providers in their largest plan’s network to provide timely access to services. As plan costs continue to rise for employers, these networks may be further limited as high-cost providers are removed to mitigate costs.

While ESI seems likely to remain the dominant source of health insurance for working families, employers and working families each face challenges relating to affordability and access to care. These include: 

Ultimately, health care is expensive, and the cost of good ESI coverage can place a strain on employers and employees, particularly for workers with lower wages. Additionally, only about half of workers with incomes below 200% of the FPL are even eligible for ESI at their workplace. Can ESI be a source of affordable coverage for all working families, or are novel approaches to providing affordable coverage options needed for these families? 

Many ESI policies have significant deductibles and other out-of-pocket costs to keep the premium costs down, while increasing the cost of obtaining care for enrollees. Can and will employers continue to increase out-of-pocket costs, and, if not, how will they control the costs of ESI going forward? 

What avenues are available to employers to increase access to care for people with mental health and substance use care needs? Is telehealth a sufficient response? 

Can employers and health plans develop provider networks that provide quality health care at lower costs? 

• 2023 Employer Health Benefits Survey 
• 2023 Employer Health Benefits Chart Pack 
• Long-Term Trends in Employer-Based Coverage – Peterson-KFF Health System Tracker 
• Long-Term Trends in Employer-Based Coverage 
• Many Workers, Particularly at Small Firms, Face High Premiums to Enroll in Family Coverage, Leaving Many in the ‘Family Glitch’ 
• How many people have enough money to afford private insurance cost sharing? 
• The burden of medical debt in the United States 
• How affordability of employer coverage varies by family income 
• Increases in cost-sharing payments continue to outpace wage growth 
• What do we know about people with high out-of-pocket health spending? 
• Preventive services use among people with private insurance coverage 
• Many Workers, Particularly at Small Firms, Face High Premiums to Enroll in Family Coverage, Leaving Many in the ‘Family Glitch’ 
• Out-of-pocket spending on insulin among people with private insurance 
• Employer Responsibility Under the Affordable Care Act 

Claxton, G., Rae, M., & Winger, A., Employer-Sponsored Health Insurance 101. In Altman, Drew (Editor), Health Policy 101, (KFF, May 28, 2024) https://www.kff.org/health-policy-101-employer-sponsored-health-insurance/ (date accessed).

Health coverage in the United States is marked by a blend of private and public insurance options that leaves about 8% of the population uninsured. This coverage system has evolved over the years, most recently with the implementation of the Affordable Care Act (ACA), which aimed to reduce the uninsured rate by expanding Medicaid, creating health insurance Marketplaces for individuals, and providing subsidies to make the coverage more affordable. Many factors, including economic conditions, federal and state policy changes, and significant health crises, such as the COVID-19 pandemic, influence the uninsured rate. The ACA and recent policy changes designed to protect coverage during the pandemic have led to increased health coverage overall; however, longstanding racial and ethnic disparities in coverage persist.

Health coverage in the U.S. is a complex patchwork of private and public insurance coverage options. In 2022, most residents had private insurance coverage, with nearly half covered by an employer-based plan . About 1 in 5 U.S. residents received coverage through the Medicaid program, the federal and state-financed comprehensive health coverage program for low-income people. Another roughly 15% of the population had health coverage from the federal Medicare program, which covers seniors and people under age 65 with long-term disabilities. About 6% of the population had private non-group insurance either purchased through the ACA Marketplace or off-market, and just over 1% of the population was covered through the military’s Tricare program. The uninsured rate for the total population was 8.0% for the year (Figure 1). (In some cases, people have multiple forms of coverage. For example, about 13 million people are enrolled in both Medicare and Medicaid and are classified in these figures as covered by Medicaid.)

In 2022, there were 25.6 million nonelderly uninsured residents and the uninsured rate among the nonelderly population was 9.6%, the lowest rate in U.S. history (Figure 2). The analysis of the uninsured population focuses on coverage among nonelderly people since Medicare offers near-universal coverage for seniors, with just 457,000, or less than 1%, of people over age 65 uninsured.

Prior to the implementation of the ACA, gaps in the public insurance system and lack of access to affordable private coverage left over 40 million people without health insurance. The ACA expanded health insurance coverage by extending Medicaid coverage to nearly all adults with incomes up to 138% of the federal poverty level (FPL) (the poverty level in the continental U.S. is $14,580 for a single individual in 2024) and creating new health insurance Marketplaces through which individuals can purchase coverage with financial help to afford premiums and cost-sharing. Following the passage of the ACA in 2010 and the rollout of the coverage provisions, the number of nonelderly uninsured people dropped to 27 million in 2016. The ACA envisioned that all states would adopt the Medicaid expansion; however, a Supreme Court ruling in 2012 made expansion optional for states. As of early 2024, 40 states and Washington, D.C. had adopted the ACA’s Medicaid expansion (Figure 3).

The declines in uninsured rates following implementation of the ACA coverage expansions were largest among poor and near-poor nonelderly individuals, particularly adults. People of color, who had higher uninsured rates than White people prior to 2014, had larger coverage gains from 2013 to 2016 than White people, although the coverage disparities were not eliminated.

Before implementation of the ACA, expansions of Medicaid coverage and the enactment of the Children’s Health Insurance Program (CHIP) helped to lower the uninsured rate for children. Changes in the 1980s and early 1990s expanded Medicaid eligibility levels for children and pregnant people, and the establishment of CHIP in 1997 provided coverage for children with incomes above Medicaid thresholds. When states implemented CHIP, extensive outreach efforts along with the adoption of streamlined processes facilitated enrollment of children in Medicaid and CHIP and reduced the number of uninsured children.

After declining through 2016, the number of uninsured people and the uninsured rate began increasing in 2017 and continued to grow through 2019. Generally favorable economic conditions as well as policy changes during the Trump Administration, such as reduced funding for outreach and enrollment assistance, encouraging periodic Medicaid eligibility checks, changes to immigration policy related to public charge rules, and approval of some demonstration waivers to restrict enrollment led to a decline in Medicaid enrollment, which likely contributed to the increase in uninsured people.  

With the arrival of the COVID-19 pandemic, policies adopted to protect coverage drove a decline in the uninsured population from 2019 to 2022. The Families First Coronavirus Response Act required states to keep people continuously enrolled in Medicaid in exchange for enhanced federal funding. (Medicaid continuous enrollment ended in March 2023.) In addition, the American Rescue Plan Act (ARPA) provided temporary enhanced ACA Marketplace subsidies to make Marketplace coverage more affordable, and these subsidies were renewed for another three years in the Inflation Reduction Act of 2022.

Most people who are uninsured are nonelderly adults, in working low-income families, are people of color, and, reflecting geographic variation in income, immigration status, and the availability of public coverage, live in the South or West. In 2022, over 7 in 10 people who were uninsured were nonelderly adults and just over a quarter were children.

Nearly three-quarters (73.3%) of the nonelderly uninsured population had at least one full-time worker in their family and an additional 10.9% had a part-time worker in their family (Figure 4). More than 8 in 10 (80.8%) people who were uninsured were in families with incomes below 400% FPL in 2022 and nearly half (46.6%) had incomes below 200% FPL. People of color comprised over 62% of the nonelderly uninsured population in 2022 despite making up about 46% of nonelderly residents. Most uninsured individuals (75.6%) were U.S. citizens, while 24.4% were noncitizens in 2022. Nearly three-quarters lived in the South and West.

Nonelderly adults are more likely to be uninsured than children. The uninsured rate among children (5.1%) was less than half the rate among nonelderly adults (11.3%) in 2022, largely due to the broader availability of Medicaid and CHIP coverage for children than for adults. Among nonelderly adults, men had higher uninsured rates than women in 2022 (12.8% vs. 9.8%).

Reflecting persistent disparities in coverage, people of color are generally more likely to be uninsured than White people. In 2022, nonelderly American Indian and Alaskan Native (AIAN) and Hispanic people had the highest uninsured rates at 19.1% and 18.0%, respectively, which were nearly three times higher than the uninsured rate for White people (6.6%). Uninsured rates for nonelderly Native Hawaiian or Pacific Islander (NHPI) (12.7%) and Black people (10.0%) were also higher than the rate for their White counterparts (Figure 5). These differences in uninsured rates are driven by lower rates of private coverage among these groups. Medicaid coverage helps to narrow these differences but does not fully offset them.

Noncitizens are more likely than citizens to be uninsured. The uninsured rate for recent immigrants, those who have been in the U.S. for less than five years, was 30.3% in 2022, while the uninsured rate for immigrants who have lived in the US for more than five years was 33.1%. By comparison, the uninsured rate for U.S.-born citizens was 7.7% and 9.5% for naturalized citizens in 2022. One in 4 children has an immigrant parent, including over 1 in 10 (12%) who are citizen children with at least one noncitizen parent.

Uninsured rates vary by state and by region and were generally higher in states that had not taken up the ACA Medicaid expansion in 2022 (Figure 6). Economic conditions, availability of employer-sponsored coverage, and demographics are other factors contributing to variation in uninsured rates across states.

The fragmented U.S. health coverage system leads to gaps in coverage. While employer-based insurance is the prevalent source of coverage for the nonelderly population, not all workers are offered coverage by their employer or, if offered, can afford their share of the premiums. Medicaid covers many low-income individuals, especially children, but eligibility for adults remains limited in most states that have not adopted the ACA Medicaid expansion. While subsidies for Marketplace coverage are available for many low and moderate-income people, few people can afford to purchase private coverage without financial assistance.

The cost of health coverage and care poses a challenge for the country broadly and is a significant barrier to coverage for people who are uninsured. In 2022, 64.2% of uninsured nonelderly adults said they were uninsured because coverage is not affordable, making it the most common reason cited for being uninsured (Figure 7). Other reasons included not being eligible for coverage (28.4%), not needing or wanting coverage (26.1%), and signing up being too difficult (22.2%).

Not all workers have access to coverage through their jobs. In 2022, 60.7% of nonelderly uninsured workers worked for an employer that did not offer them health benefits. Among uninsured workers who are offered coverage by their employers, cost is often a barrier to taking up the offer. Low-income families with employer-based coverage spend a significantly higher share of their income toward premiums and out-of-pocket medical expenses compared to those with income above 200% FPL.

A decade after the implementation of the ACA coverage options, 10 states have not adopted the Medicaid expansion, leaving 1.5 million uninsured people without an affordable coverage option. A coverage gap exists in states that have not adopted the expansion for poor adults who earn too much to qualify for Medicaid coverage but not enough to be eligible for subsidies in the Marketplace.

Lawfully present immigrants generally must meet a five-year waiting period after receiving qualified immigration status before they can qualify for Medicaid. States have the option to cover eligible children and pregnant people without a waiting period, and as of January 2023, 35 states have elected the option for children and 26 states have taken up the option for lawfully present pregnant individuals. Lawfully present immigrants are eligible for Marketplace tax credits, including those who are not eligible for Medicaid because they have not met the five-year waiting period. However, the fear of the federal rules about “public charge,” which can deny an individual entry to the U.S. or adjustment to lawful permanent status (a green card) if it is determined the individual has a likelihood of becoming primarily dependent on the government for subsistence, can deter immigrants from seeking coverage. Undocumented immigrants are ineligible for federally-funded coverage, including Medicaid and Marketplace coverage.

Though financial assistance is available to many of the remaining uninsured under the ACA, not everyone who is uninsured is eligible for free or subsidized coverage. Six in 10 (15.3 million) uninsured individuals in 2022 were eligible for financial assistance through Medicaid or subsidized Marketplace coverage (Figure 8). However, 4 in 10 uninsured (10.3 million) were outside the reach of the ACA because their state did not expand Medicaid, their immigration status made them ineligible, or they were deemed to have access to an affordable Marketplace plan or offer of employer coverage (Figure 8).

Lacking health insurance in the United States can impact a person’s access to health care, their financial situation, and their health status. It can also broadly impact a community’s public health (illustrated by the COVID-19 pandemic) and the economy through lower productivity.

Adults who are uninsured are four times more likely than adults with insurance to report not having a usual source of care, which is often a key entry point for accessing health care whether for preventive services or for treating existing conditions. Consequently, in 2022, nearly half (47.4%) of nonelderly uninsured adults reported not seeing a doctor or health care professional in the past 12 months compared to 16.6% with private insurance and 14.0% with public coverage. Uninsured individuals are also more likely to face cost barriers to accessing needed care. In 2022, 29% of uninsured adults reported delaying or not getting care due to cost compared to 6% of insured adults (Figure 9).

The lack of access to health care and a delay in seeking care due to costs means uninsured people are more likely to be hospitalized for avoidable health problems and to experience declines in their overall health. Research also shows that when they are hospitalized, uninsured people receive fewer diagnostic and therapeutic services and have higher mortality rates than those with insurance.

Uninsured individuals often face unaffordable medical bills when they do seek care, which can lead to medical debt and other forms of financial instability. More than 6 in 10 (62%) uninsured adults report having health care debt compared to over 4 in 10 (44%) insured adults (Figure 10). Uninsured adults are more likely to face negative consequences due to health care debt, such as using up savings, having difficulty paying other living expenses, or borrowing money.

Proposals to expand health coverage have not been a focus of the current Congress. However, some states are considering legislation to expand coverage for specific populations. There has been renewed interest in the ACA Medicaid expansion among some of the 10 states that have yet to take up the option. In addition, several states have recently expanded fully state-funded coverage to certain groups of low-income people regardless of immigration status. As of early 2024, 12 states and Washington, D.C. cover income-eligible children regardless of immigration status and 5 states and Washington, D.C. cover some income-eligible adults regardless of immigration status . As part of the ARPA and then the Consolidated Appropriations Act of 2023 states were granted an option to extend Medicaid postpartum coverage to 12 months and 48 states and Washington, D.C. have taken up this option. Several states have received approval of Medicaid waivers to provide continuous eligibility for children from birth up to age six, and other states are pursuing similar waivers. A number of states are also seeking to provide 12 or 24 months of continuous eligibility for all or some adults. These waivers allow individuals to remain enrolled in Medicaid for the specified time period regardless of changes in income.

The number of people without insurance and the uninsured rate dropped to record lows in 2022 because of pandemic-era coverage policies that provided continuous enrollment in Medicaid and enhanced premium subsidies in the ACA Marketplaces. However, the end of the Medicaid continuous enrollment provision in March 2023 has likely contributed to an increase in the number of people who are uninsured as millions are disenrolled from the program. The magnitude of any increase will depend on whether individuals who are no longer eligible and are disenrolled from Medicaid transition to other coverage, including employer plans and the Marketplace and whether those who are disenrolled despite remaining eligible are able to re-enroll in Medicaid. While Marketplace signups have reached 21.4 million people, exceeding the record high in 2023 by 5 million people, a relatively small share of people disenrolled from Medicaid appear to be transitioning to Marketplace or Basic Health Plan coverage so far. The enhanced premium subsidies in the ACA Marketplace will expire at the end of 2025 if not extended by Congress, that will lead to large out-of-pocket premium increases for enrollees.

Enactment of the ACA helped close some gaps in our fragmented health coverage system. Still, economic conditions play a big role when most people receive coverage through an employer. The stability of the ACA will be a factor in the continued access to affordable coverage in the short term. While its favorable ratings among the public have improved in the past decade, some policymakers and political candidates continue to express a desire to repeal the law.

• Key Facts about the Uninsured Population 
• How Many Uninsured Are in the Coverage Gap and How Many Could be Eligible if All States Adopted the Medicaid Expansion?
• A Closer Look at the Remaining Uninsured Population Eligible for Medicaid and CHIP
• Health Coverage by Race and Ethnicity, 2010-2022
• How Does Cost Affect Access to Health Care?
• State-Funded Health Coverage for Immigrants
• Three Questions About Medicaid Unwinding: What We Know and What to Expect
• A Closer Look at the Remaining Uninsured Population Eligible for Medicaid and CHIP
• State-Funded Health Coverage for Immigrants

Tolbert, J., Drake, P., & Singh, R., The Uninsured Population and Health Coverage. In Altman, Drew (Editor), Health Policy 101, (KFF, May 28, 2024) https://www.kff.org/health-policy-101-the-uninsured-population-and-health-coverage/ (date accessed).